Articles

Michael Sheehan's Ferraris-online.com Article

The Lambo Dealer, the $12m Swindle, the Slammer

All the major players in the exotic car world have been in the game for decades and know who to trust. But Vik Keuylian played by his own rules.

As appeared in:

Sports Car Market—June 2009 issue

Sheehan Speaks

by Michael Sheehan

Platinum Lamborghini, out to pasture
Platinum Lamborghini, out to pasture

In early November 2008, I received multiple early morning phone calls and emails telling me that Lamborghini of Orange County had just closed its doors.

My first thought was how could the largest Lamborghini dealership in the world possibly go broke? My second thought was, why had it taken so long?

We begin with a short history lesson

Successful tractor manufacturer Ferruccio Lamborghini entered the automotive world with the 350 GTV at the Turin Auto Show in 1963, followed by the modestly successful 350 GT and 400 GT production cars. The Miura bowed as a bare mid-engined super-exotic chassis at the Turin Auto Show in November 1965, posing Lamborghini as a serious challenger to Ferrari. When Marcello Gandini’s stunning bodywork was unveiled at the Geneva Auto show, the Miura became the exotic for the rich and famous. Lamborghini continued with the Espada four-seater in 1968, the mass-market Urraco at the Turin Show in 1970, and the ultra-exotic LP 500 Countach at the Geneva show in 1971.

Alas, Lamborghini ran out of luck and money in the early 1970s after the tractor factory had bet the farm on a major plant expansion. A large order for tractors was canceled, wiping out Lamborghini’s cash reserves. The Urraco and LP 400 Countach finally went into limited production, just as the world was rocked by the first oil crisis of October 1973 and the market for thirsty supercars imploded. Add on a major investment in the Hummer-style Cheetah (LM002 in America), and by 1978, the automaker was bankrupt.

The soap opera years

The names on the head office door kept changing. First Georges-Henri Rossetti, a Swiss industrialist, bought a 51% share from Ferruccio Lamborghini. Then Lamborghini sold his remaining 49% to Rene Leimer, another Swiss. In 1978, the Italian courts appointed Dr. Alessandro Arteses to run things, but by 1979, the company was led by Raymond Noima and Hubert Hahne, who was Lamborghini’s German importer. In July 1980, Patrick Mimran, (another Swiss) took over management and in 1984 took ownership, but lacked the engineering expertise and funds to do more than keep Lamborghini on life support.

Chrysler saves the day

Lee Iacocca came to the rescue in April 1987, when Chrysler bought Lamborghini. A quick facelift of the Countach as the “25th Anniversary” special model kept the name and factory afloat until the Diablo arrived. Chrysler’s timing seemed right, as Marcello Gandini, who designed the Miura and the Countach, was already working on the Diablo. Thanks to Chrysler dollars, design input, volume manufacturing techniques, efficient pollution controls, and attention to creature comforts, the Diablo was a success.

Once again Lamborghini had the right car at the wrong time, introducing the Diablo in January 1990, as the world economy fell off a cliff. In January of 1994, Chrysler bailed out, selling to an Indonesian investment group headed by Tommy Suharto. Shortly before, Chrysler had built a substantial parts and vehicle distribution center in Jacksonville, Florida, under a separate division called ALUSA, or Automobili Lamborghini USA. ALUSA had financial problems from the start, and within a few years owed the factory for about 20 U.S.-spec. Diablos.

My uncle’s boss runs Chrysler

In an amazing coincidence, shortly after the Chrysler takeover, Tony Carlini, the nephew of Lee Iacocca’s lieutenant, Hank Carlini, became the Orange County Lamborghini dealer. Pacifica Lamborghini immediately sold its allotment, plus a few more Anniversary Countachs and rode the Diablo to success. Unfortunately, Carlini had no interest in service or parts, a necessity for a franchised exotic car dealership, the economy declined, the Diablo lost its initial luster, and in 1993 the doors closed.

Enter Vik Keuylian

I first met Vik Keuylian when he was a small-time car broker in Newport Beach, specializing in Lamborghinis. In 1995, Keuylian took over the Orange County Lamborghini dealership, simply because no one else wanted it. As the economy improved, Keuylian’s Platinum Motors prospered, but without a regular supply of cars, no dealer can succeed.

So in January 1998, Keuylian offered to buy the entire inventory of ALUSA—about 20 new U.S.-spec. Diablo VTs and SVs—at the importer cost, or about $35,000 below dealer cost, with 20 days to pay. Lamborghini was thrilled at the cash flow and Keuylian sold the cars at dealer cost to a line of buyers.

Lamborghini was cashed out of 20 cars, Keuylian made the $35,000 spread between importer and dealer cost (times 20), and retail clients were thrilled to buy at dealer cost. As part of the agreement, Keuylian was given the distributorship for North America. Not surprisingly, the surviving dealer network was unhappy about 20 cars sold at cost, undercutting their potential sales, and even less thrilled to have Keuylian as the distributor.

The boom years

By mid-1998, Keuylian had doubled Lamborghini’s U.S. sales from 48 cars to 100 cars; by the end of 1998, Keuylian had sold 160 new Lamborghinis, over half of total production. At roughly $35,000 profit per car—times 160—the math pencils out to $5.6m. Add a bonus of $10,000 on every car, once Keuylian reached 100 cars, and the picture was very rosy. For reasons best left to the reader’s imagination, the business entities were in the names of Keuylian’s sisters, Nora, Sossi, and Astrid. Keuylian and his sisters were to keep the distributorship for the next two and a half years.

On August 4, 1998, Audi AG became the sole owner of Automobili Lamborghini and immediately moved to replace the Keuylian family as importers. By late 2000, after what can best be called acrimonious negotiations, Audi bought out the Keuylians as importers, but Platinum Lamborghini remained the Orange County dealer. With the introduction of the Gallardo, sales at Platinum Motors reached 200 cars a year, making Platinum Lamborghini the largest Lamborghini dealership in the world. High-profile clients such as Rod Stewart, Kobe Bryant, Nicolas Cage, and Dennis Rodman certainly helped sales.

Your word is your bond

There are only three businesses in which large sums of money are wired around the world with minimal paperwork and lots of trust—flashy trinkets (as in diamonds, watches, and jewelry), exotic cars, and illicit drugs. The exotic car world is a contact sport and all the major players have been in the game for decades, and they know who to trust. However, Keuylian developed a reputation of playing by his own rules, and if there was a way to make deals go sideways, Keuylian found it, leaving a trail of angry clients and furious fellow dealers in his wake.

The boom turns to bust

Run properly, Platinum Lamborghini had sales of just over 200 high-end exotics a year, with a gross margin of about $25,000 per car. That’s $5m a year income and a pre-tax, after-expenses profit of about $2m. But Keuylian got caught up in the real estate bubble, and from 2005 to 2007 he bought three empty building lots in the Santa Ana Auto mall at over $6m. He also purchased his freeway frontage showroom for another $9m—a crushing $15m debt load.

In what can only be called egotistical madness, Keuylian attempted to develop a 60-acre winery with a 120-room luxury resort in Temecula’s wine country. He also tried to build a 154-room hotel in Escondido… another fiasco. As things spiraled out of control he added two closed restaurants in South Orange County, intending to build new dealerships on the land. Finally, Keuylian bought land on Pacific Coast Highway for a new dealership and opened two satellite showrooms, one in Calabasas and another in Newport Beach.

It was too much. The negative cash flow was far more than even a prosperous exotic car dealership could handle. When the economy went south in 2008, the house of cards collapsed. True to form, Keuylian held a two-week Lamborghini fire sale, dumping 54 cars at below-wholesale prices for $8.1 million. As you might expect, none of that money found its way back to Volkswagen AG, who had provided the cars on credit. In November 2008, the doors were closed, the building was cleared, and Volkswagen AG was owed $12m out-of-trust.

No winners here

After more than three decades in the exotic car business, I know that in boom times it’s hard to do anything wrong, and in a bust it’s hard to do anything right. Keuylian didn’t pay attention to his business, didn’t build a group of trusted dealers to work with when business slowed, and was wiped out by massive financial over-extension and mismanagement within six months of the downturn.

On March 11, 2009, in an effort to shield his sisters and in a pre-arranged deal with the D.A., Keuylian pleaded guilty to wire fraud, with a recommended five-year sentence.