This Washington Post article and interview with Steve Blake and Roger Penn provides an explanation for Blake's bankrupcy in October of 1985. By Warren Brown

In the end, love was not enough-not with the bank calling for its money, not with the paint peeling off $38,000 cars like so much blistered skin, not with the factory literally falling down around his ears. And so Stephan H. Blake, a Washington real estate man turned auto maker, has called it quits in South Bend, Ind. where he built modern versions of the famed 1962 Studebaker Avanti luxury car for the last four years. It was a tough decision for Blake, who bought his first Avanti in 1972 and who said he loved the car so much that he decided to buy Avanti Motor Corp. 10 years later. But seeing Avanti fail would have been even tougher, Blake said. He said he resigned from the Avanti presidency earlier this month to give the company a chance to survive.

Avanti has been idling in US Bankruptcy Court in Indiana since Oct. 22 trying to get up enough speed to reorganize under Chapter 11 of the federal bankruptcy laws. The company is 5.5 million in debt, the legacy of a costly mistake in choosing a new auto-body paint system, Blake said in a recent interview. The little auto maker's creditors have been balky. And although Avanti's remaining managers have been working long days to come up with a plan to save the company, there is no guarantee they will succeed. Avanti's fate could be decided this week, when its biggest secured creditor, 1st Source Bank of Indiana, decides to accept or reject four investor-group proposals to return the company to production. 1st Source is owed about $3.1 million of the outstanding Avanti debt. The bank, in negotiations with Blake last year, had threatened to foreclose on the auto maker. A negative response from the bank this time would mean more than an end to Avanti. It would be the final chapter in the history of the Studebaker Co., which closed its doors in South Bend in 1963 and in Canada in 1966.

The Avanti car, which continued in production under a new owner, is the last link to the Studebaker days. Robert E. Smith, who succeeded Blake as Avanti's president, said he is well aware of what is at risk. "We are guardedly optimistic that we will make it. We have four strong investor groups who have come up with workable plans to save the company", Smith said. The bank is "working very closely" with Avanti and the investor groups to determine if any of the plans could form an acceptable foundation for reorganization, Smith said." I'll be glad when all of this is over so that we can go back to building cars," Smith said. His comment about Blake was brief: "Steve Blake worked hard for his ideas, worked 20-hour days for his ideas. That's as far as I'm going to go," Smith said.

Blake's ideas did not fit well at Avanti, an auto maker that was turning out 200 hand-crafted cars annually when he took over in South Bend in 1982. Blake loved cars and he loved the Avanti best of all. But he was a mover and a shaker, and he said he absolutely loathed what he viewed as Avanti's slow and sloppy methods of doing business. "What I found when I took over was a zoo," said Blake, whose reputation for bluntness is as strong as his passion for cars. "There was no engineering department. The purchasing manager seemed to work when he wanted to. The paint department was in disarray. "About the third month I was there, I saw this guy in the plant who I had never seen before. So I asked somebody: 'Hey, who is that guy? Where does he work?

"Well there was a little cage room in the back of the shop. Somebody told me that this guy would come in every day and go back there and sleep," Blake said. He had to fire some people and bring in others whom he could trust. He pushed for an engineering department and got one, and then he started pushing for increased production. By his second year, Blake and the beefed-up Avanti seemed to be well on their way. Production had passed 300 cars per year and was approaching the 400 mark.

By 1984, Blake was being hailed as a savior in magazines like Car and Driver, an internationally circulated auto-buff book. "The sense of purpose Blake has brought to Avanti has attracted management talent from all over the country," Car and Driver said then. Blake "is making Avanti visible once again," the magazine said. But friends and associates of Blake, in interviews last week, said that the feisty entrepreneur was dismantling Avanti at the same time he seemed to be putting it together. "I have no ill feelings toward Steve. He can be a very good friend," said Roger Penn of McLean, who has sold Avanti cars in the Washington area for 17 years. :But the company did not succeed under Steve's leadership, and that's a fact," Penn said. Echoing comments made by others, Penn said that Blake's ambitions outstripped the realities of Avanti.

Avanti long has been regarded as one of the best-styled cars in America, or anywhere else. Its sleek, flowing body has been put on display in the Smithsonian. But the Avanti is what is known in the auto industry as a "niche car," a special item, almost a curio. Its mystique is in its design and its limited availability. The Avanti's engine and drive train, the things that make the car go, are built by General Motors Corp. The car moves with purpose and grace, but it has never been regarded as a high-performance machine. Blake wanted to change all of that, Penn said. "He wanted to go up against cars like BMW. He wanted to get involved in racing. We never should have gotten involved in things like that," Penn said.

Blake also desperately wanted to change the mechanics of how the Avanti was painted; and he wanted to move out of the aging South Bend plant, where he said pieces of falling ceiling had almost struck four workers. Trying to get a new plant might have been a good idea. But changing the paint system in the summer of 1984 was a disaster, Blake and other Avanti official's said. "The sealants used in the paint system were not compatible with the fiberglass bodies of our cars. We were putting cars out on the street, with prices ranging from $29,000 to $38,000, and the paint wasn't just coming off. It was flying off," Blake said.

He thought that he and his staff had done adequate research to make sure that the paint system's sealants matched the Avanti's body materials. "But it just didn't work," he said. The result was a nearly $6-million loss, not to mention the loss of dealers who got fed up trying to explain to customers why their expensive cars were peeling. Repairing several hundred cars meant stripping them of the incompatible paint and repainting them-at almost $6,000 per car. Said Smith: "The paint system was the straw that broke the camel's back and destroyed a lot of dealer confidence in the product." Going with the new paint system "was a unilateral decision made by Blake," Penn said. Smith and Penn said that the Avanti's current paint system works well.

In January 1984, before the pain fiasco, Blake said that he did not think that he would ever return to Washington or real estate. In an interview months before he resigned, Blake said he would do it all again. "Hindsight is wonderful. It's just great. Knowing what I know now, I'd do things differently."