Dealers selling Automotive Professional Inc. (API)’s vehicle service contracts (VSC) were “looking for the money” in late February after news began leaking out mid-month that the Schaumburg, Ill.-based company was going into assignment.

In a memo obtained by F&I magazine to agents dated Feb. 12, API said it “has determined that it has no choice but to make an assignment for the benefit of” its creditors. The letter stated that the assignment would happen within a few days after the memo was sent.

“This has been a difficult decision made under the burden of severe cash flow shortfalls from reduced service contract products and steady strong GPR activity,” the letter, sent by James H. Hawk, said. “We are actively working with our insurance carriers to determine the status of their programs and the possibility that one of them may be willing to move forward with a new program for your dealers.”

Messages were left with a representative at API seeking comment, but a call back did not make F&I E-Newsletter’s Tuesday deadline. Dealers said they haven’t heard from API and they now fear the worst. One dealer in Texas who asked to remain anonymous said her dealership met for three full days about API, and said they are working with just about everyone to figure out what’s going to happen.

“This so new right now,” she said. “We’re trying to figure it out ourselves. We’re pulling original dealer agreements, trying to figure out what’s changed.

“What are we going to do with people we have coming in every single day wanting to get things authorized? We’re on high alert, and that’s putting it mildly.”

In the summer of 2005, API announced that First Colonial Insurance Company and Northbrook Indemnity Company, wholly owned subsidiaries of The Allstate Corporation, would underwrite API’s vehicle service contract program. Prior to that, API’s vehicle service contracts were underwritten by Marathon Financial Insurance.

The dealer in Texas said she’s been talking to Marathon because her dealership sold API vehicles service contracts before Allstate’s subsidiaries became the underwriters of its contracts.

A spokesperson at Marathon said the company’s attorneys are working with the liquidator handling API, and said that customers – both dealers and end-users – are being given phone numbers to the liquidator. She also said an e-mail account has been set up so that claims and other questions would be forwarded to the liquidators.

A representative from Allstate said she would respond to questions about API, but a return call did not make the e-newsletter’s Tuesday morning deadline.

Founded 1984, API said in its summer 2005 dealer newsletter that Allstate selected the company because of its solid foundation. Now the company joins names like WPC Associates Inc., who closed its doors last August, and Warranty Services Co, which the Better Business Bureau said has disconnected its lines, according to a Used Car News November report.

“At the moment, we’re on hold,” said one F&I director from a dealership in East Haven, Conn. “Right now we’re not in a situation where we have customers coming to us with claims. It’s too early at this point to know what’s going to happen.”