Dealers that have provided extended-service warranties to their customers through Automotive Professionals Inc. (API) may be headed for tough days ahead.
The Chicago-area firm informed its dealers and agents it was entering “assignment for the benefit of creditors.” In a memo to agents, Owner James Hawk cited “severe cash shortfalls from reduced service contract production and steady strong GPR (guaranteed price refund) activity,” as the culprits.
An agent who asked not to be identified says API lost approximately 1,000 dealers the last couple of years. In addition, the firm miscalculated the number of GPRs (in which customers can pay extra on their plan to receive a refund if no claims are made throughout the life of the claim) it would have to pay back.
API currently is in receivership with the Illinois Director of Insurance under the management of the Office of the Special Deputy Receiver for the State of Illinois. A representative for the office declined to comment, other than to confirm the company is in “conservatorship,” a process set up to mitigate the fall out for consumers when an insurance-related company goes out of business.
Dealers and several agents have filed separate lawsuits — one against API, and the other against Brokerage Professionals Inc., (owned by API's parent company, Nserv. Corp.), the Swiss Re America Group and Marathon Financial Insurance Co.
From mid-February into early March, API was telling its dealers it was no longer servicing contracts backed by Marathon, which were written between 2002 and the summer of 2005. Swiss Re apparently reinsured the contracts written by Marathon.
AllState Corp.'s subsidiaries, First Colonial Insurance and North Brook Indemnity Co. replaced Marathon in 2005.
Calls to API's main office are answered by a voicemail directing dealers to call another number, which takes them to another voicemail asking they leave a message. Dealers say the calls are not being returned.
Dealers say they are frustrated by the situation. “You can't believe some of the answers we're getting from people at API,“ a Massachusetts dealership service director says.
The worst-case scenario is that API is ot of money leaving its dealers to fend for themselves.
“We wrote $30,000 in contracts with API last quarter,“ the service director says. “We're a Ford dealership, and that's not something we can absorb right now.“