Repossessions Rise as Textile Firms Unravel Apparel: The same crews that delivered knitting machines to Southern California's once-bustling fabric mills now are hauling them out on behalf of creditors.

By MARLA DICKERSON, Times Staff Writer

Time was when Kenny Dunkel was welcome in any textile factory in Southern California. Dunkel is an equipment mover. And during the 1990s he delivered hundreds of gleaming new knitting machines to the region's bustling fabric mills. Eager textile entrepreneurs tipped his crews, bought them lunch and gave them plenty of repeat business. These days, Dunkel and his employees are more likely to be shown the door than the welcome mat. They're still busy hauling textile equipment. Only now they're working for creditors, yanking machines out of mills such as Los Angeles-based Calendar Textile Inc. whose owners can't make their payments. "All I'm doing are repossessions," Dunkel said, prepping a 4,000-pound knitting machine for removal from the bankrupt mill. "I'm taking out the same machines I helped put in." Beset by slumping U.S. apparel production, rising energy prices and shrinking margins, the Los Angeles textile industry is being dogged by a new adversary: the repo man. Industry watchers calculate that about 10% of the region's knitting machines have ceased production during the last year and a half, many of them repossessed by the companies that financed them. Lenders have lost millions. And the machine market is so glutted with repos that used-equipment dealers are beating the bushes as far away as India and Pakistan for buyers. It's no picnic, either, for Dunkel and his workers, who have discovered that retrieving collateral can be a tangled business. They tell of stakeouts, stalling tactics, switcheroos and stolen parts--signs of the times in an industry come unraveled. Experts say the jolt to L.A's knitting industry marks a particularly humbling shakeout for a sector that defied gravity in the '90s. While East Coast mills slashed jobs, closed factories and headed offshore to produce commodity fabrics, local textile entrepreneurs found a niche providing novelty knits and lightning-fast service to L.A.'s apparel makers. New firms mushroomed, led by an influx of immigrant South Korean entrepreneurs. In a decade during which the U.S. textile sector shed nearly 150,000 jobs, L.A. County's fabric-making employment surged 70% to a high of 17,000 workers in 1999. Trouble is, all those new players squeezed profit margins in an industry already under pressure from cheap imports. Meanwhile, lenders and equipment makers proved so eager to fund the one pocket of the domestic trade that wasn't in tatters that they helped create the overcapacity now plaguing the local industry. "Some [finance] companies played too aggressively and made loans they shouldn't have made," said Richard Myong, vice president of the equipment leasing division of Hana Financial of Los Angeles. "The market got overloaded." At its peak, Southern California was home to an estimated 10,000 knitting machines. Industry experts say the recent contraction has claimed at least 1,000 of those as mills have downsized, filed for bankruptcy protection or closed their doors. Among the walking wounded is Doori America Inc. of South Gate. Once one of the fastest-growing mills in Southern California, the company now is operating under Chapter 11 bankruptcy protection and has surrendered two-thirds of its 250 knitting machines to the leasing companies that financed them, according to controller James Yoon. "Most companies in this market are downsizing," Yoon said. "The market situation is tough." Financial institutions have tightened their lending, and new-equipment dealers say sales have plummeted. But business is booming at the L.A. County Sheriff's Department, which handles court-ordered repossessions. The department has seen a spike in textile-related cases during the last year, Deputy Jerry Shultz said. "We used to average maybe two or three a month; now we're getting two or three a week," he said. "There is a lot of disarray in the garment industry right now, and we're seeing the end results." The popular image of repossession is a guy with a tow truck snatching cars from the driveways of unsuspecting deadbeats. Industrial repossession requires a little more finesse. Banks and leasing companies can't break into factories to retrieve their collateral. If the debtor won't consent to let them in, they need a court order to get inside. A sheriff's deputy tags along to keep the peace. It's a good thing too, according to equipment mover Dunkel, who said he's about as welcome as a boll weevil at some troubled textile mills these days. "Some people yell and curse," said Dunkel, vice president of Commerce-based Southern California Machinery Movers. "I try not to take it personally." A fourth-generation equipment mover who sports a crisp blue uniform with his name on the pocket, the 35-year-old Dunkel is earnest, amiable and the antithesis of the grizzled tough popularized by Harry Dean Stanton in the 1984 cult film "Repo Man." When aerospace accounts withered in the 1990s, he spotted a niche delivering knitting equipment to the growing textile sector. Manufacturers paid him $350 to $500 per machine to haul the two-ton contraptions, fresh off the docks from Germany, Japan and South Korea. Today it's lenders and re-marketers who are hiring him to wrest repos from some of those same factories. The money is about the same, but Dunkel dislikes playing the heavy. "Your whole attitude is different, because you know people are going to be upset," he said. Though most mill owners give up without a fight, Dunkel said, some file for bankruptcy protection to delay the inevitable. Others won't return phone calls or go into hiding. That has forced Dunkel to come up with some new moves of his own. He once did a pre-dawn stakeout at a Los Angeles knitting mill in hope of catching up with the elusive proprietor in the parking lot. (He did, but the owner still wouldn't let him inside.) And Dunkel's crews have learned to scrutinize identification numbers on knitting equipment: Mill owners have been known to switch them in an attempt to hand over machines of lesser value. Purloined parts are another concern. Dunkel has taken to photographing the machines he picks up, lest lenders think he's the one stripping them of expensive needles and circuit boards. Sometimes getting out of a knitting mill is trickier that getting inside. Herman Diaz, who works for Dunkel, said he and a co-worker were removing four repossessed knitting machines from Sunflower Textiles in Los Angeles last year when he found himself staring down the barrel of a police officer's shotgun. Turns out someone had called the cops, claiming the two men were thieves. Proper paperwork cleared the way for the movers to take the machines from the now-bankrupt mill. But Diaz won't forget the two hours he spent in handcuffs. "Some of these owners want to take it out on us," Diaz said. "I try to tell them we're just middlemen." Indeed, Dunkel's two Commerce warehouses have become a sort of textile equipment purgatory, where repos come to await their fate. There are dozens of behemoths with nameplates reading Mayer & Cie, Monarch and Keum Yong, the dusty metal halos that hold the yarn still trailing wisps of Lycra as if waiting for someone to hit the "on" switch. The reality is that used-equipment dealers are having a devil of a time finding buyers in Southern California or anywhere else in the United States. Machines that sold for $40,000 to more than $100,000 new are bringing pennies on the dollar, mostly from foreign purchasers. Santee re-marketer Ed Starr figures it took him 300 phone calls and e-mails to move a recent model Korean-made machine that sold for about $50,000 new. The buyer was in Pakistan. The sales price: about $3,000. "That's the market right now," said Starr, owner of California Leasing & Remarketing. "Everybody is trying to unload these things." That's bad news for banks and leasing companies, which have seen the value of their collateral sag like a swap-meet prom dress. Lenders don't like to talk about it, but U.S. Bankruptcy Court records provide a glimpse of their pain. Filings from just four area mills--Calendar Textile, Sunflower Textiles, Doori America and KOA USA Textile--show combined creditor claims topping $30 million. A big chunk of that stems from equipment loans extended by some of the biggest names in the business, including CIT and GE Capital. "They've all taken hits," said Joe Kofsky, an apparel consultant with the Los Angeles office of accounting firm Moss Adams. "You'd like to win that much money in the lottery, I can tell you that." And there probably will be more pain ahead. Jerry Sullivan, editor of Pacific Textile News, predicts the local industry will emerge stronger and healthier from the shakeout--but not before an additional 10% of the region's knitting machines disappear. That should keep players such as Dunkel busy for a while. But he's already looking to other industries for the long haul. "When a guy opens a factory you figure he'll be a repeat customer," Dunkel said. "A repo is a one-time deal. It's over."

-- Guy Daley (guydaley1@netzero.net), June 03, 2001