Inventory Floor Planning Solutions

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

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