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Archive for the ‘Floorplan Financing’ Category

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

NEIL ROLAND
AUTOMOTIVE NEWS
APRIL 27, 2009 – 12:01 AM ET

WASHINGTON — The Obama administration is exploring ways to expand financing to car dealers, the head of the National Automobile Dealers Association said Friday. NADA Chairman John McEleney said members of the auto task force told him they are trying to find ways to let dealers borrow money to buy new cars from manufacturers.

One option the task force is looking at is working with the Small Business Administration, said McEleney, who met with task force adviser Ron Bloom and others on Thursday, April 23. “The task force wants that to happen, and they’re trying to find avenues, including through SBA,” McEleney said in an interview.

NADA did not request a specific figure, he said.

Source: Automotive News

Technorati Tags: floor plan financing, Floorplan Financing, John McEleney, SBA

NEIL ROLAND
AUTOMOTIVE NEWS
APRIL 24, 2009 – 3:39 PM ET

WASHINGTON — The Obama administration is exploring ways to expand financing to car dealers, the head of the National Automobile Dealers Association said today.

NADA Chairman John McEleney said members of the auto task force told him they are trying to find ways to let dealers borrow money to buy new cars from manufacturers.

One option the task force is looking at is working with the Small Business Administration, said McEleney, who met with task force adviser Ron Bloom and others yesterday.

“The task force wants that to happen, and they’re trying to find avenues, including through SBA,” McEleney said in an interview.

The dealers group did not request a specific figure, nor did the task force offer one, he said. Task force members did not commit to providing aid or specify a deadline by which they would decide, McEleney said.

The SBA confirmed that the agency is looking into expanding aid to automakers.

“We are looking seriously at whether there can be changes in the program and considering making changes that would allow the loans that NADA is seeking,” said SBA spokesman Mike Stamler.

A White House spokeswoman did not immediately respond to a request for comment.

SBA guidelines limit aid eligibility to dealers with less than about $29 million in annual revenue, Stamler said. An average dealer’s revenue is about $40 million to $45 million, McEleney said.

Dealers typically obtain floorplan loans from captive finance companies, national and regional banks, and credit unions. The lenders obtain their capital from a variety of sources, including securitized loans.

NADA has unsuccessfully sought assistance from the administration’s Term Asset-Backed Loan Facility, which provides backing for consumer and small-business loans.

TALF funds AAA-rated securitizations, in which loans are bundled and sold to institutional investors and financial institutions. But floorplan securitizations, in which lenders bundle dealer loans into asset-backed securities, are rated below investment grade.

General Motors has prepared plans to reduce the number of dealers to 4,100 from 6,200 by 2014.

About 900 U.S. dealers went out of business last year, leaving around 19,000 today. McEleney estimated that 1,200 will go out of business this year.

Source: Automotive News

Technorati Tags: floor plan financing, Floorplan Financing, National Automobile Dealers Association, SBA

By Kimberly Johnson
AP Auto Writer
(AP) — A national auto dealers group said Thursday that President Obama’s auto task force is considering extending loans usually reserved for small businesses to dealers, making it easier for them to borrow money to acquire showroom vehicles.

According to the National Automobile Dealers Association, which met with the task force Thursday morning, the government is considering ways to help dealers access money to buy cars to stock their lots. Frozen credit markets have yet to thaw since banks received TARP aid, said NADA chairman John McEleney, causing dealers continued difficulty in acquiring loans and staying afloat.

“There are a lot of departments of government involved, but the task force agrees with dealers that credit is a significant problem,” he said. “They wanted to know if we were seeing improvement in credit and dealer financing. We’re seeing some on the retail side but we still need help with floor plan loans.”

Most dealerships do not qualify for the typical loans from the Small Business Administration, because they have gross receipts of more than $29 million, including sales of cars, service and parts.

“One of suggestions we made to the task force was to go to an employee-based size standard,” said Andrew Koblenz, vice president of legal and regulatory affairs for NADA. “The mechanism they choose doesn’t account for the fact that cars have gotten more expensive over time, but the returns don’t get larger.”

SBA spokesman Mike Stamler said administrator Karen G. Mills indicated during her confirmation hearing earlier this month that the agency would look “seriously” at expanding SBA lending to cover auto dealers. Stamler said there was no timetable yet for implementing such a plan and no details were available, but noted that the SBA used a similar temporary program to help dealers in the late 1970s.

The task force also wanted to know how employees would be affected should one of the automakers file for bankruptcy, NADA VP Koblenz said. Nearly 500,000 are employed at GM and Chrysler dealerships nationwide. A government accountability report on the auto restructuring plans released Thursday said that more than 900 dealers closed in the past year and that dealer employment was down.

A typical dealership employs about 55 people, including technicians. Under current rules, only about 15 percent of dealers, with fewer than 30 workers, would be eligible for a loan, McEleney noted.

“While they wouldn’t all be out of jobs, a lot of them would be,” McEleney said. “They asked if it would have a devastating effect on employment across the country.”

Crain’s Detroit Bussiness

Technorati Tags: National Automobile Dealers Association, Small Business Administration

NADA Pushes to Jumpstart Floorplanning Securitization Under TALF

Updates Added March 30, 2009

Background

• Dealers rely on floorplan financing to buy vehicles from the manufacturers. The average floorplan loan for a dealer is $4.9 million, and dealers collectively hold approximately $100 billion in floorplanned inventory.

• These floorplan loans are obtained from a variety of sources: captive finance companies, national banks, regional banks, credit unions, etc.

• In order to extend this credit, the floorplan lenders need capital, and they obtain it from a variety of sources as well.

• One key source of capital for the floorplan lenders is the floorplan securitization market.  To access capital through this market, floorplan lenders bundle dealer floorplan loans together into what are called asset-backed securities (or ABSs) and then sell these ABSs to institutional investors.

The Problem

• Until last fall, the floorplan securitization market was operating quite well, providing very efficiently priced capital for floorplan lenders.  Floorplan securitizations were good investments and attracted a lot of buyers.  In fact, floorplan securitizations were generally rated AAA.

• However, when the liquidity crisis hit, the floorplan securitization market froze up just like a lot of other credit markets.  Institutional investors stopped buying floorplan securitizations or offered to buy them only at prices at which the floorplan lenders could not afford to sell.

• This caused many floorplan lenders to run out of the cash they needed both to extend new floorplan financings and to roll over existing floorplan financings, which, in turn, contributed significantly to the distress that many dealers are now facing.

The TALF

• The TALF is an effort to address this problem.

• TALF stands for “Term Asset-backed securities Loan Facility.”

• The TALF is a $200 billion to $1 trillion dollar credit program designed to facilitate the issuance and sale of a variety of ABSs, including three of great importance to dealers.
(more)
• The TALF will work by providing liquidity to the buyers and sellers of ABSs.

• The ABS asset classes included within the TALF that are of importance to dealers are as follows:

o Securities backed by SBA guaranteed loans – these are ABSs that provide capital to banks who make working capital loans to small businesses like dealerships.

o Securities backed by retail auto financings – these are ABSs that provide capital to lenders who extend credit to consumers who buy cars.

o Securities backed by retail auto leases – these are ABSs that provide capital to lenders who lease cars to consumers.

o Securities backed by dealer floorplan loans – these are ABSs that provide capital to lenders who make loans to auto dealers for their inventory financing.

• The Treasury Department announced on November 25, 2008 that the Federal Reserve Board would be establishing the TALF.  At the time the TALF was announced, it expressly extended to both securities back by SBA guaranteed loans and securities backed by retail auto financings.  However, it was unclear at that time whether the TALF would also include securities backed by auto dealer floorplan loans. That uncertainty was removed on Dec. 19 when the Federal Reserve Board confirmed that auto floorplan securitizations would be eligible for the TALF.

• It is important to note that the TALF is not a source to which dealers can apply to obtain floorplan loans directly.

• Nonetheless, it is hoped that the TALF will give dealers significant help by reopening the floorplan securitization market and thereby providing capital to the traditional floorplan lenders who will then have the resources they need to once again extend floorplan financing to dealers.

• The TALF began funding securitizations on March 25, 2009. Unfortunately, because the funding is limited to AAA-rated securitizations and many dealer floorplan securitizations were recently downgraded below AAA, the initial funding of the TALF is not expected to significantly enhance the availability of credit for floorplan loans. Nevertheless, the initial funding is assisting in the availability of retail auto credit. Moreover, the FRB could modify the eligibility criteria for floorplan securitizations in subsequent fundings of the TALF, and NADA and many finance sources are working tirelessly to ensure that those eligibility criteria changes are made as soon as possible.

© National Automobile Dealers Association
March 2009

Technorati Tags: Asset-backed security, TALF, Term Asset-Backed Securities Loan Facility

J.D. Power and Associates is working with F&I magazine to seek feedback from dealer principals for its 2009 Dealer Financing Satisfaction Study, which allows dealers to evaluate lender performances in prime retail credit, subprime retail credit, floor planning and retail leasing.

First published in 1994, the annual study has been a platform for dealers to provide feedback on lenders and their services. Dealers have the opportunity to share what is most important to their dealership and how lenders, including captives, banks, independent providers and credit unions, are performing.

Dealers will provide in-depth evaluations of their key finance providers, based on volume of business, and all aspects of that relationship. Dealers will also rate the importance of full-spectrum lending and provide insights on the relationship between selection of a provider for floor planning and retail financing.

For each survey completed, J.D. Power and Associates will contribute $2 to a charity of that dealer’s choice from a list of six options.

Based on the study’s results, J.D. Power and Associates will rank lenders in four segments: prime retail credit, subprime retail credit, retail leasing and floor planning. Finance providers must be evaluated by at least 50 dealer respondents in order to be eligible for award consideration.

Deadline to participate in the J.D. Power and Associates 2009 Dealer Financing Satisfaction Study is May 8, 2009. To participate, click here, or visit www.jdpowersurveys.com/dealerstudy.

Source: www.fi-magazine.com

Technorati Tags: J. D. Power and Associates, Loan, Subprime lending

Contact Your U.S. Senators and Urge Them to Support
Small Business Administration (SBA) Loans
for RV Floorplan Loans

Click Here for a Sample Letter

RV dealers and their volunteer leaders agree: the number one issue facing the RV industry is financing.   The Obama Administration must turn its attention on the severe impact of the credit crisis on RV dealers and the urgent need for floorplan credit.  Without retail credit and floorplan loans, even well-capitalized dealers can be out of business.  Preserving floorplan lending is essential to keeping dealers in business and purchasing new RVs. The RV industry will not recover until the retail credit and floorplan problem is fixed.

RVDA is urging the President and Congress to support the following policy recommendations.  These recommendations also have the support of the National Automobile Dealers Association (NADA).

1. Expand access to Small Business Administration (SBA) lending capacity for dealers.  The Administration has the statutory authority to expand the SBA size standard that today excludes many dealers.  Also, the Administration has the statutory authority to allow SBA’s guarantee program to be used for floorplan loans that currently are ineligible under the program. An emergency directive implementing these two changes would increase access to credit for small business dealers all across the country.

2. Restore liquidity for RV retail and floorplan lenders. Work with the Federal Reserve Board to make sure that the Term Asset-backed Securities Loan Facility (TALF) injects essential liquidity by revitalizing securitization of RV retail and floorplan loans. If TALF is too cumbersome to meet this objective in the short term, then create another mechanism to restore lending in these areas. Time is of the essence.

President Obama’s pick for the SBA’s new administrator, Karen Mills, told Senators at her confirmation hearing that she “would be very interested” to look at the SBA floorplan loan policy “quickly and see what the possibilities are to help.” It’s time to urge the Administration and Congress to transfer those words into action.

Please contact your U.S. Senators and urge them to support changes in SBA loan policies that can help RV dealers.

To contact your U.S. Senators click here.

RVDA will post regular updates and more information at www.rvda.org. Thanks for your support.

Mike Molino, CAE
President, RVDA

Technorati Tags: Floorplan Financing, Floorplan Loans, National Automobile Dealers Association, SBA, Small Business Administration

There is no doubt that car dealers have been going through difficult times in 2008.  This has been a year for testing the strength of car dealers and the dealers that survive will prove to be well-capitalized and well-managed.

Although the used car business has been going through a recession, the franchise dealers have been experiencing a depression.  People that need to purchase a car have been keeping the market alive – it has been a “need” driven market as opposed to a “want’ driven market.  Dealers that have catered to this “need” market have performed, while the new car dealer in the “want” market has experienced difficulty.

The used car dealer has far less overhead than a new dealer and has the flexibility to react to changing inventory needs – this dealer has absolute discretion in what inventory he purchases.  The used car dealers that have that have capitalized these strengths have the management skills to do well in years to come.

We believe Dealers First Affiliates effectively demonstrates a more secure means of reentry into this market for local lenders. Our business model offers a simple and fair way of doing business, and the accessibility and appeal of a hometown setting encourage strong, long term relationships with dealers. Our computer software provides both lender and dealer with concise, pertinent information and can enable you to create a highly competitive profit center within your organization.

Technorati Tags: Floorplan Financing

Lender also restores retail financing to subprime customers

Donna Harris
Automotive News
April 1, 2009 – 10:16 am ET
UPDATED: 4/1/09 12:39 p.m. ET

In a sharp reversal, GMAC Financial Services said today that it has backed off a tough new inventory repayment policy on aging new vehicles and has agreed to resume subprime lending.

GMAC also said it is pumping $5 billion more into consumer auto loans over the next 60 days.

The initiatives are designed to boost auto sales and help keep struggling dealers afloat, said GMAC President Bill Muir.

“Dealers have told us that cash flow is critical right now,” Muir said in a statement. “We want to do everything possible to help dealers sell their inventory of cars and trucks, while preserving their working capital during the next couple of months.”

Eliminating dealer curtailments

GMAC said it immediately will eliminate all dealer curtailment payments for older new-vehicle inventory during April. Curtailment is a standard industry practice accelerating the payoff of inventory in stock for an extended period.

In January, GMAC said it would increase the amount it charged dealers to keep some aging new vehicles on their lots. The accelerated payment schedule began in March and applied to new vehicles with model years of 2007 or older and new 2008 vehicles financed before Sept. 1, 2007.

GMAC also is waiving fees it charged dealers to post older vehicles on SmartAuction, GMAC’s online remarketing site, through June. The waiver is designed to help dealers clear their lots of older vehicles.

And the company is letting some dealers postpone interest charges on inventory financing for two 30-day periods over the next 120 days. Dealers can start the deferral program beginning with their interest bill for March. The payment for deferred interest will be due 90 days after the month the charges are postponed.

The program “can be a significant temporary boost to cash flow,” Muir said. “Our goal is to ease the burden on dealers over the next few months as they work hard to lower costs, reduce inventory and protect their financial stability.”

Return to subprime

GMAC is getting back into subprime lending, agreeing to extend credit to retail customers with credit scores below 620 — on a limited basis. These customers still will need to qualify for financing, GMAC said in its announcement. It did not specify those requirements.

In October, GMAC introduced a minimum credit score of 700. After receiving federal aid in January, the lender lowered the minimum score to 620, the conventional cutoff below which customers are considered to have risky credit. But the company announced it would shut down its subprime subsidiary, Nuvell Financial Services.

GMAC also is increasing advance rates for car loans with terms of 60 months or fewer. The advance rate is the amount lenders are willing to lend, often expressed as a percentage of the vehicle’s sticker price.

The company said nothing about auto leasing in its announcement. Dealers have said GMAC’s withdrawal from leasing has substantially hindered auto sales.

“GMAC now finances a broad spectrum of auto buyers,” Muir said. “Through March, we financed over $2 billion in new and used retail auto contracts. We want to do our part to support the U.S. auto industry and individuals in the market for a car or truck.”

In December GMAC received a $6 billion government bailout that required GM and the private equity firm Cerberus Capital Management LP to slash their stakes in GMAC. GM’s stake was 49 percent and Cerberus’ 51 percent.

GMAC, now a bank holding company with operations in North America, South America, Europe and the Asia-Pacific region, had $189 billion in assets on Dec. 31.

Reuters contributed to this report

All I can Add, It’s about time…

Technorati Tags: floor plan financing, Floorplan Financing, GMAC, Inventory Financing