Inventory Floor Planning Solutions

Archive for May, 2009

ARLENA SAWYERS

AUTOMOTIVE NEWS

MAY 4, 2009 – 12:01 AM ET

Last November, Bob Cockerham closed his Suzuki dealership in Rio Rancho, N.M. Its new-vehicle sales had plunged 60 percent from the previous year.

In January, Wells Fargo Auto Finance, the floorplan lender for Cockerham’s Car World Kia dealership in Santa Fe, N.M., told him it was canceling his loan agreement. The bank said the dealership was losing too much money.

Things looked bleak. Then, in February, David Swanson rode to Cockerham’s rescue.

Swanson operates Save Your Car Dealership, a Seattle company specializing in crisis management for dealerships on the brink of losing their inventory financing. Swanson, a former dealer, reviewed the financials at Cockerham’s Kia store and went to work.

Under Swanson’s guidance, Cockerham slashed his advertising budget by about 70 percent, to $14,000 a month. By changing vendors, Cockerham cut his data processing costs in half, to $7,750 a month, and his telephone expenses by more than 40 percent, to $4,100 a month. He switched his sales managers, who previously earned a salary along with commission, to straight commission.

None of Swanson’s advice was rocket science, Cockerham concedes. He said he knew he needed to make deep cuts to survive, but could not bring himself to do it.

Survival manual

David Swanson, founder of Save Your Car Dealership, says dealers must take these steps to cope with a down market.

• Streamline spending
• Focus on used-vehicle sales
• Monitor financial statements for errors
• Communicate closely with lenders
• Follow through on tough changes

‘Terrifying experience’

“It’s a pretty terrifying experience,” Cockerham told Automotive News. “David takes the emotion out of it. He calmly comes in and says, ‘Here’s what we’re going to do.’ ”

Swanson said Wells Fargo is reviewing the dealership’s streamlined budget. Added Cockerham: “We’re close to putting another deal together. David’s done a great job of convincing them of our long-term viability.”

Swanson, 51, said his four-year-old company now works with about 35 dealerships. He said he has gotten lenders to restore floorplanning for about 60 percent of the 120 clients he has represented.

Often, Swanson said, his biggest challenge is persuading dealers that they need to change with a changing market. Lenders care about a dealership’s cash flow, capitalization, liquidity and liabilities, he said – not a dealer’s wishful thinking.

“Lenders don’t want to hear about a plan to sell more cars,” Swanson said. “The economy isn’t going to get better in the near future. I tell my dealers to cut costs to match the lousy economy. Lenders want to see blood on the floor.”

Swanson said he typically works with dealerships for six to eight months to ensure they follow through on the changes he advocates.

He charges $15,000 to $35,000 for his services, depending on the size of the dealership and the number of dealerships involved in a single restructuring. He says half of the fee is paid upfront. The rest is paid if he is successful in restoring floorplan financing.

If financing isn’t restored, dealers don’t pay the rest of the fee.

Leonard Wantz said he hired Swanson last fall when his Chevrolet dealership in Taneytown, Md., faced disaster. Floor traffic had dried up, as had the retail financing provided by a local bank. The dealership’s inventory lender, which Wantz declined to identify, threatened to cut off financing.

Slashing jobs, ad budget

Wantz and Swanson slashed the dealership’s head count by almost 40 percent, to 27 workers. They cut ad spending almost 60 percent, to about $5,000 a month. With those and other reductions in place, Wantz said, his floorplan lender agreed to maintain his credit line.

“After 44 years in business, I thought it was coming to an end,” Wantz said. “But when David got involved, he painted a whole different picture.”

Swanson said his clients benefit from his own mistakes as a dealer. From 1991 to 2002, he owned two Nissan dealerships, a Hyundai dealership and a Subaru dealership, all in the Seattle area.

Swanson said he bought too many stores, expanded too rapidly and soon became overextended. He invested some of the dealerships’ cash in tech stocks. When the tech bubble burst, he said, his working capital was “decimated.”

Said Swanson: “I was young and stupid.”

Source: Automotive News

NEIL ROLAND

AUTOMOTIVE NEWS

MAY 1, 2009 – 4:29 PM ET

NEW YORK — About 10,000 auto dealers and an untold number of suppliers will be eligible for federally backed loans of up to $2 million each under a new Obama administration program announced today.

The temporary Small Business Administration plan will loosen eligibility requirements for working-capital loans starting early next week, the agency said in a statement today. The loans for working capital typically are provided by small regional banks and guaranteed by the federal government.

Although only about 25 percent of the 19,000 U.S. auto dealers have been eligible for the assistance, that percentage will more than double under the new program, said John McEleney, chairman of the National Automobile Dealers Association.

“This means that thousands more dealers will be able to avoid layoffs, make payroll and keep employees,” he said in an interview.

The money can be used for daily operational expenses, McEleney said. The dealers group is trying to get more federal aid for floorplan loans, which can be used to purchase new cars from automakers, he said.

The new program will be in effect through September 2010, the SBA said. It will affect all small businesses, not just auto dealers and suppliers.

A spokesman for the Original Equipment Suppliers Association did not immediately respond to a request for comment.

The new eligibility requirements are based on net worth and net income rather than revenue.

To qualify, a dealer’s company and its affiliates must not exceed $8.5 million in net worth and $3 million in average annual net income after federal income taxes, excluding carryover losses, for the two preceding fiscal years.

SBA loans cannot be used to finance dealership floorplans. Dealers use floorplan loans to finance the purchase of new vehicles.

The typical floorplan loan is for $5 million. “Two million dollars is extremely helpful, but it’s not large enough to help a dealer’s floorplan,” Bailey Wood, NADA’s legislative director, told Automotive News yesterday. NADA is lobbying the federal government for more floorplan financing, Wood said.

Source: Automotive News

DAVID SEDGWICK, DONNA HARRIS, BRADFORD WERNLE
AUTOMOTIVE NEWS
APRIL 30, 2009 – 6:52 PM ET

Thousands of Chrysler LLC dealers who face the loss of floorplan financing will have an opportunity to sign up with GMAC.

A senior GMAC executive said today that his company will sign up all Chrysler dealerships that now finance their wholesale vehicle inventories, or floorplans, with Chrysler Financial.

The lender also will provide retail loans to customers of Chrysler dealerships. As of March 31, Chrysler LLC had 3,215 dealers.

During his White House briefing on Chrysler today, President Barack Obama noted that the federal government will not loan Chrysler Financial the money it needs to stay in business.

Instead, the president said the government would give GMAC additional financing to service Chrysler’s dealers. And GMAC is jumping at the opportunity to expand. “We will step in and fill the gap,” said GMAC President Bill Muir. “It involves a few thousand dealers. It’s our expectation we can do that by the middle of May.”

A private brand

During a teleconference today, Chrysler co-President Jim Press told dealers that Chrysler will have its own “private branded” finance organization with GMAC.

Because GMAC has status as a commercial bank, it will give dealers better access to financing, Press said. “We’ve been suffering from insufficient liquidity from Chrysler Financial, he noted. “We’ve been walking tightrope with insufficient conduit of funds available.”

Press told dealers Muir will address them during a Friday conference call.

Speaking on the same conference call, Chrysler sales chief Steven Landry told dealers they will get access to GMAC financing tools almost immediately. “The priority is to get retail set up first,” Landry said. “Next week we will start working on the wholesale.”

Initially, GMAC will offer floorplans to all Chrysler dealers on a temporary basis. As Chrysler emerges from bankruptcy, GMAC will accept or reject dealers’ floorplan applications using the same financial yardsticks that it applies to GM dealers.

“We are working with the government to bring the Chrysler dealers on, sight unseen,” Muir said. “Then we’ll go through a rapid credit underwriting process, which will take a couple of months. And then we’ll take them on as normal customers.”

Government bailout

During the credit crisis, the asset-backed securities market that GMAC and Chrysler Financial relied on for funds dried up. They were unable to bundle loans and leases and sell them to investors, who had become skittish about the auto industry.

As a result, both GMAC and Chrysler Financial turned to the federal government for aid. GMAC Financial Services received $6 billion; Chrysler Financial received $1.5 billion.

Chrysler Financial is burning its cash more quickly than GMAC. And though both Chrysler Financial and GMAC applied with the federal government to become bank holding companies, only GMAC was approved.

So while Chrysler Financial’s cash dwindles, GMAC is tapping its bank’s growing deposits — a relatively inexpensive source of financing.

GMAC also has provided commercial and retail financing for non-GM dealers in the past, and has expressed interest in expanding this business. Through its bank, for example, GMAC recently launched a dealership mortgage program that is open to dealers of all makes.

Cerberus’ role

While Chrysler Financial and GMAC got radically different treatment at the hands of President Obama, they are actually linked by cross ownership.

Cerberus Capital Management LP — which owns Chrysler LLC — also owns Chrysler Financial and had held a 51 percent stake in GMAC. Cerberus is reducing the stake in GMAC as the financier converts its status to a bank holding company.

As GMAC prepares to expand, Chrysler Financial is in crisis. The company will retain its current book of consumer loans. But it has suspended its participation in Chrysler’s subvented interest rate programs for retail car loans.

In a letter to all Chrysler dealers, CEO Thomas Gilman explained that the filing has landed Chrysler Financial in trouble with its creditors. Although Chrysler Financial operates independently of Chrysler LLC, the automaker’s bankruptcy filing has jeopardized Chrysler Financial’s agreements with lenders.

Wrote Gilman: “It does present several operational challenges.”

Chrysler Financial’s difficulties accelerated after the lender was unable to renew all of its $30 billion in conduit financing in August, forcing it to drop out of the leasing business within days.

Source: Automotive News

NEIL ROLAND

AUTOMOTIVE NEWS

APRIL 30, 2009 – 4:39 PM ET

WASHINGTON — More auto dealers and suppliers will be eligible for federal loans under the expansion of a Small Business Administration program to be announced tomorrow, President Barack Obama said today.

The SBA will double or even triple the number of dealers eligible for federally guaranteed loans for working capital, said Bailey Wood, legislative director of the National Automobile Dealers Association. Each loan can range up to a maximum of $2 million.

Currently, only dealers with less than $29 million in annual revenue, or about 25 percent of all U.S. dealers, are eligible for this assistance.

The new SBA requirements will expand this eligibility to well over 50 percent and perhaps as many as 75 percent of the nation’s 19,000 dealers, said Wood, who has been briefed on the new assistance.

“This is a very big deal,” Wood said in an interview with Automotive News. “This will not only have a significant impact on the auto industry but on the larger economy as well.”

But the administration will not offer SBA loans to finance dealership floorplans. Dealers use those loans to finance the purchase of new vehicles for their showrooms.

The typical floorplan loan is for $5 million. “Two million dollars is extremely helpful, but it’s not large enough to help a dealer’s floorplan,” Wood said.

NADA is lobbying the federal government for more floorplan financing, he said.

The SBA loan expansion to be announced tomorrow will affect all small businesses, not just auto dealers and suppliers. The loans for working capital typically are provided by small regional banks and guaranteed by the federal government.

Wood said he did not know the cost of the expansion. SBA and White House spokespeople declined to comment. A spokesman for the Original Equipment Suppliers Association did not respond to a request for comment.

Automotive suppliers currently are eligible for SBA assistance only if they have fewer than 500, 750, or 1,000 employees, depending on their sector.

Under other guidelines announced several weeks ago, Obama expanded the percentage of a working-capital loan that can be guaranteed by the government to 90 percent from 75 percent. That means that as much as $1.8 million of a maximum $2 million loan extended by the bank now can be guaranteed.

Source: Automotive News