By on July 7, 2009

You may not be familiar with H.R. 2743. The Automobile Dealer Economic Rights Restoration Act of 2009 tells New Chrysler and New GM that they “may not deprive an automobile dealer of its economic rights and shall honor those rights as they existed, for Chrysler LLC dealers, prior to the commencement of the bankruptcy case by Chrysler LLC on April 30, 2009, and for General Motors Corp. dealers, prior to the commencement of the bankruptcy case by General Motors Corp. on June 1, 2009, including the dealer’s rights to recourse under State law.” In other words, it would reverse New ChryCo’s and New GM’s dealer cutbacks—or at least force Uncle Sam to spend taxpayer billions to dump them. The bill is doomed. But that’s not stopping GM from asking its post-cull dealers to show their fealty and help twist the knife into their former colleagues. Text of the “loyalty oath” after the jump. [thanks to you-know-who-you-are]

Action Required:  Following your review of my letter below, please open the attached letter to read an e-mail letter that is being sent today to NADA Leadership, Automotive Trade Association Executives (ATAEs) and Congressional Co-Sponsors of the Automobile Dealer Economic Rights Restoration Act of 2009” (“H. R. 2743”).

To demonstrate your opposition to this Bill your signature and dealership information is needed at the bottom of the attached letter.

Dear Fellow GM Dealers:

On June 8, 2009, select members of Congress introduced a bill known as the “Automobile Dealer Economic Rights Restoration Act of 2009” (“H. R. 2743”).  The General Motors National Dealer Council (“NDC”) strongly opposes this bill.  As a leadership group that includes members that have been issued wind-down notices or have affected brands, all NDC members are painfully aware of the crisis facing GM and the automotive industry – and the impact this legislation would have on the dealer network.  The bill is in direct opposition of the interests of the overwhelming majority of GM dealers selected to move forward with the New GM.  In fact, the content of this bill could potentially impact our future dealer body in the following manner:

– It would seek to nullify GM’s plan to reshape its Dealer Network into a more effective, stronger distribution channel, and could at a minimum, significantly delay or entirely deerail the closing of GM’s sale of assets.

– Dealer profitability could continue to deteriorate as it has in the past few years where we have had too many dealers, too close together, competing for the same customer in the same market.

– This restructuring presents painful sacrifices to many.  However, going forward, approximately 4,140 dealers will continue to depend on the sale of GM cars and trucks.  While the National Dealer Council does not advocate the termination of any individual dealership, we understand that optimizing the dealer network will give the continuing dealers a greater opportunity to develop their operations which will improve their ability to compete against our best competitors.  In addition, this new dealer network footprint will allow the New GM to focus on the four core brands- Chevrolet, Cadillac, Buick, and GMC, allowing for the attraction of more private capital, the best dealer operators, and most importantly, new customers.

We take strong exception to the way certain members of Congress have characterized GM’s handling of dealer network restructuring – including claims that it has been undertaken without transparency and justification.  To the contrary, GM has conducted its dealer restructuring in an objective and professional manner, based on performance criteria that are part of its sales and service agreement with dealers.   The NDC commends GM for taking this approach.  GM’s approach is in stark contrast to the approach taken by Chrysler, which took a far different approach much less beneficial to the involved dealers.

GM has also taken great care to protect the confidentiality of dealer status and financial information, with the full support of the NDC.  We also applaud GM and its leadership for its willingness to work with the NDC and NADA to address recent dealer concerns regarding the Participation Agreements issued to dealers that will move forward with the New GM after bankruptcy.

In closing, we wholly support GM’s reorganization plan, including actions to significantly reduce the overall size and scope of the company.  Moreover, we stand ready to continue to work in partnership with GM on solutions to the challenges we face today.  I plan to send the following letter to various bill supporters.  I urge you to review this letter and would appreciate your signature of support at the bottom where designated.  Please fax the signed letter to me at (989) 792-1002.  (It is extremely important that you do this immediately.  Our voices need to be heard.)

Thank you for your support by continuing to work tirelessly to insure that a new, vibrant GM can continue in to the future.

Sincerely,

Duane Paddock

[NB: Duane Paddock is the GM National Dealer Council Chairman.]

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49 Comments on “GM: New GM Dealers Must Sign Loyalty Oath...”


  • avatar
    mo V

    John Galt would be proud.

  • avatar
    no_slushbox

    re:bluecon:

    Eric Arthur Blair, also known as George Orwell, was a democratic socialist, obviously against communism, as can be seen in Animal Farm, but on the left end of the Labour party.

    The Patriot Act would scream “1984” to Orwell if he was still alive, and he would likely be disturbed by the continued delegation of authority from Congress to the President with TARP. However, the auto bailout (big on this site, but nothing in relation what is going on in the financial industry) would not be worth his time.

    Orwell would laugh at unsecured creditors (the auto dealers) whose contracts were voided in a Bankruptcy (a practice which goes back to the foundation of this country) whining about their “economic rights”.

    I know that it’s tempting for the conservatives to cite liberals like Orwell, since they’ve actually written strong literature. But if you’re going to argue for the Republican agenda then please stick with an author from that side, like Rand, even if her stories of the “productive” (i.e. the people that write uncollateralized credit default swaps and then lobby for government bailouts) going on strike and moving to an imaginary island are a bit embarrassing.

  • avatar
    no_slushbox

    re:bluecon:

    Good job, you have moved on to Rand. What is being “shrugged” is the worthless redundant auto dealers of bankrupt auto manufacturers (which they helped to bankrupt). Better than me paying them off.

  • avatar
    Pch101

    please stick with an author from that side, like Rand, even if her stories of the “productive” (i.e. the people that write uncollateralized credit default swaps and then lobby for government bailouts) going on strike and moving to an imaginary island are a bit embarrassing.

    Dude, there is a time in life when that Ayn Rand stuff just seems awesome.

    (Of course, then you graduate from college, and then it doesn’t seem so cool anymore.)

  • avatar
    at40

    This bill and its companion in the Senate gathers steam. As a Washington insider I will say this…don’t dismiss HR 2743 yet…..there are hundreds of Congressmen and Senators looking to gain some acclaim with their constiutents. Also GM was and is currently worried about this…..

  • avatar
    montgomery burns

    This tone on this blog puzzles me sometimes.

    The consensus, i believe, was that GM had too many dealers. GM got rid of a bunch. Congress is trying to undo that which i would think the conservative participants would be against.

    GM then wants its dealer network to work against H.R. 2743 by writing to Congress. That’s the way things get done be it in the car biz or with a defense contractor. I thought everybody would be for that.

  • avatar
    Pch101

    Oh, to comment on the story, it looks like your stock run-of-the mill lobbying effort. It might be goofy, but it doesn’t seem sinister to me.

  • avatar
    skygreenleopard

    I think the sinister side is that if the bill passes, GM and Chrysler would have been against it all along and maybe try to get more billions as concessions to being forced to keep dealers that would otherwise be cut. The reason the bills are still alive are jobs, jobs, jobs – no congressman wants legislation to cut jobs, they want to keep them. Of course, those new billions might be drops in a bucket, but it still sucks.

  • avatar
    Steven02

    Why was this posted again? Must they sign it? This looks like lobbying to me. I don’t think anyone would care. Besides, this bill will never pass.

  • avatar
    at40

    I have to diasgree with you….this is the one bill that has a great chance of passing. Dial into the count….it gathers steam everyday. It needs at least 218 supporters in the House for a mjority and it has over 202 co-sponsors already. The Senate is behind since they introduced their version of the bill a few weeks later but they have 12 supporters already….Let’s not forget Congress was away for a week for the 4th of July.

  • avatar
    motownr

    I wouldn’t give odds on this bill failing as some of you are quick to do.

    There is no doubt that the dealer cuts in some part can be attributed to scores being settled by the factories against certain dealers who had thwarted efforts to run them out of business in legitimate, legal ways. There are numerous news stories on some of the specific terminations of dealers who were otherwise solid performers. This ugliness didn’t do much to help the factories, but it did hurt numerous communities across the country. Elected representatives are acutely aware of this.

    Second, it’s clear that there will be many more dealer failures to come, and further economic pain. The reorg at GM, in particular, is disingenuous in that it’s a two-step reorganization, with Buick/GMC being unable to survive without Pontiac. The Administration’s/Task Force’s position is that only Pontiac is being terminated–the reality is that without the brand that equals the majority of sales for most BPG points, it’s a de facto termination of that channel. GM is heading toward a two-channel distribution scheme–and Congress expects the Administration to prop up their communities as they did the UAW and other key constituencies.

  • avatar
    at40

    I agree with motownr….I agree this bill is not doomed as many here think. Elected officials cannot stomach having their home communites hurt

  • avatar
    50merc

    In other words … “Get out of the lifeboat! And stay out! We 4,140 survivors want less competition. But here’s a bone for you losers: we’ll keep your identity secret so you can sell leftover no-legal-liability vehicles to ignorant chumps who believe you’ll be there to fix their cars.”

    Or more concisely … “Nice little dealership you got there. Be a shame if nothing happened to it.”

  • avatar
    at40

    Just remember it ain’t over till its over. Dealers were busy over the July 4 congressional recess reaching out to their Representatives and Senators asking them to add their names to both the House (H.R. 2743) and Senate (S. 1304) bills. With the House in session later today, additional co-sponsors are expected to be added.

  • avatar
    jkumpire

    Montgomery,

    While you are right that there are too many GM dealers according to many here, what you have in these letters is the government demanding that independent businessmen do their bidding, or they will suffer the same fate as their fellows. And since in many cases, there is evidence that it was not just a business decision to close these dealerships (the strongest or best dealers by any rational standard were not the ones to survive), it is obvious that the government is demanding that these franchisees do the government’s bidding, by attacking proposals made by other parts of the government.

    The whole letter/franchise agreement stuff is another reason not to buy a thing from Government Motors.
    If this is not Animal Farm, it is hard to see what else it is

  • avatar
    JMII

    OK I’m trying to follow this but its getting insane, so my head is about to explode:

    1) GM had too many dealers, this combined with several other factors (detailed in RF’s DW series) leads to C11.
    2) Uncle Sam steps in to help, in attempt to save jobs.
    3) New GM realizes they have too many dealerships and gives several of them (and their employees) a pink slip.
    4) Pink slip dealers cry foul and ask Uncle Sam to help.
    5) See step 2.
    5) Repeat steps 1-5 a few more times just to be sure.
    6) Still no profit? Go to step 7.
    7) End game.

    ?!?

  • avatar

    JMII

    The simplest way to think about all this ex-dealer backlash is to keep the following letters in mind: WMFB.

    Step 1. The feds bailout the automakers (GM, Chrysler)
    Step 2. The feds bailout the automakers’ financial units (GMAC, Chrysler Financial)
    Step 3. The feds bailout jobless autoworkers (UAW buyouts)
    Step 4. The feds bailout the UAW’s health care program (VEBA payments)
    Step 5. The feds bailout the automakers’ suppliers (Delphi and anyone else with a congressman)
    Step 6: The feds bailout the domestic automaker that didn’t get a bailout (DOE loan to Ford)
    Step 7. The feds bailout the transplant automaker who didn’t get a bailout (DOE loan to Nissan)
    Step 8. The feds bailout the communities affected by industry downsizing (price tag unknown)
    Step 7. The feds bailout car customers (Cash4Clunkers or CARS)

    The culled Chrysler and GM dealers look around and say Where’s MY Fucking Bailout? Then the feds bail them out.

  • avatar
    at40

    Having the Head of the National Dealer Council do GM’s work as well as the Gov’t is ludicrous.

  • avatar
    motownr

    RF:

    Good summary. However, I think it’s the communities of the culled dealers that are equally up in arms.

    I drove several hundred miles through numerous small towns in Wisconsin/Michigan over the weekend, and got a view of what’s happening across the country. Dealers that have provided representation for decades being shuttered, leaving no customer service for literally hours in any direction. Why? So Chrysler/GM can start bidding wars–including the terminated dealers!–to build new stores under crazy, one-side sales/service agreements.

    When you see the empty real estate created, and the inconveniences to the installed customer bases, you can see why people are ready to boycott “Government Motors.” It’s cynical, hypocritical, and generally insane.

  • avatar
    at40

    Amen motownr….you said it all.

    I don’t think a boycott is appropriate….all we need is the dealer’s reinstated….with rights under state laws…and the playing field should be evened out…at least for awhile.

  • avatar
    no_slushbox

    No communities will be saved, either:

    The dealers whose contracts were terminated will get nothing.

    or

    The dealers whose contracts were terminated will get to loot even more of your tax money with a buyout and use the money to move down to a gated community in Florida or the southwest (admittedly the real estate markets in those areas could use some stimulus).

    With regard to New Chrysler, which is now majority privately owned, Congress has no Constitutional authority to reinstate Chryslers dealership contracts after they were terminated in bankruptcy.

    The American public is absolutely disgusted with the automotive bailouts, and is smart enough to know that paying off dealers is just one more automotive bailout.

    Senators and Representatives, who usually fly under the radar with their votes except for the special interest tracking the particular vote, may support this, but hopefully we can count on a veto.

  • avatar
    at40

    noone says that culled dealers want a $$ bailout. The few pennies in the Termination agreements don’t even cover expenses. All the dealers want is the right to have their business functioning. It was never about a monetary dealerbailout. WHere did that come from.

  • avatar
    no_slushbox

    at40:

    For all the reasons mentioned in the above letter the excess dealers (and in GM’s case brands) are bad for GM and were bad for Chyrsler.

    Both companies would have gone bankrupt last year if not for government intervention, and have gone bankrupt since then. That is a process that lets them terminate contracts that they feel are bad for their businesses.

    Some dealers may want to keep the franchise (really only the right to sell particular vehicles as “new”), but

    1) GM and Chrysler do not want those dealers, so they will have to pay them off instead, which runs in the millions per dealer because of state laws, and

    2) Most of the dealers would probably prefer a multi-million payoff since the futures of GM and Chrysler are very uncertain.

    The dealers have not lost their lots and buildings, they have not lost the ability to service any cars, and they have not lost the ability to sell any used cars, they have just lost the contractual right to sell certain cars as “new”.

  • avatar
    no_slushbox

    Robert Farago:

    Cash for clunkers is a dealer bailout, and since it’s targeted at owners of vehicles that get 18 mpg combined or less and vehicles whose GVWR exempted them from an MPG rating it’s really a GM and Chrysler dealer bailout.

    As for the culled dealers, well, there’s that moral relativity/two wrongs don’t make a right thing – just because the UAW was able to steal taxpayer money doesn’t mean the dealers should be able to.

    We’re in this whole mess because the auto industry saw a $700 billion financial industry bailout and said Where’s MY Fucking Bailout?

  • avatar
    at40

    I am sorry no slushbox….you have it so wrong…you must not be a dealer or anywhere near the situation.

    The Dealer contracts are not bad for thier business. I have to disagree with you. The reality and not the Auto Task Force is that the Dealer cost to a manufacturer is mimimal and not what was stated. I do say there are too many dealers and have said it for years…but this Gov’t engineered BK skirted the State’s Franchise Laws….in another time this would have never happened.

    And paying the dealers millions in certainly not in any termination agreement – a softer landing would have been to close the dealers under the rights of the franchise agreements but the Gov’t would have none of that. Who do you think picked the culled dealer number….Fritz and Mark of GM …I think not. The max payout a termianted dealer is to get is one million and few got that number..most got between 75,000- 350,000…mere pennies on the dolloars of investment. How about all the parts and tools the dealers were made to buy…and what about those dealers that don’t own their building and land…and what about the 40-50 employees of the stores slated for termination.

  • avatar
    Pch101

    (the strongest or best dealers by any rational standard were not the ones to survive

    That’s one of the problems right here. Posters need to understand that what is good for a dealer is not necessarily good for the manufacturer, and vice versa.

    Dealers suck huge amounts of cash out of manufacturers by constantly requiring loans from the manufacturer. The primary benefits of cutting dealers would be the ability for the automaker to reduce production levels and lower the amount of debt that has to be carried to support production and the dealer network.

    More dealers will simply add to the cost of the bailout. Someone will have to pay for that floorplan financing, and that will be us. Someone will have to pay for the additional inventory, and that will be us.

    you must not be a dealer

    If you are a dealer, it would explain why you would put your own personal self interests above those of the taxpayer. Extra dealers just cost the taxpayer money.

  • avatar
    geeber

    motownr: I drove several hundred miles through numerous small towns in Wisconsin/Michigan over the weekend, and got a view of what’s happening across the country.

    Sounds like an opportunity for Hyundai, Toyota, Honda and Nissan (and Ford – which is keeping its rural dealers). Many of those rural and small-town areas have never had a dealer representing a foreign nameplate. People there still want to buy new vehicles, and they need to get them serviced.

  • avatar
    at40

    I am a dealer and one that is going forward…and I am a taxpayer and I don’t see how more dealers will cost taxpayers….Come on give me a break…

    PCH 101…what are you?

  • avatar
    motownr

    Respectfully, some otherwise informed posters have the math and facts completely wrong here.

    Dealers do not suck cash out of any manufacturer; they do, however, finance inventory, often through captive finance companies. The captives have historically been goldmines for the factories, not liabilities. Cerberus, for example, only acquired Chrysler as a condition to get Chrysler Financial, which they intended to merge into GMAC. The timing was admittedly poor, as was the (lack of) due diligence, perhaps; it’s never been fully explained whether or not Cerberus’ LPs still own a sizable part of GMAC…which now holds effective monopoly pricing power for Chrysler & GM dealers.

    As an industry participant at a firm with more than a half century of doing business with GM, I can tell you with certainty that the decisions to cull dealers had little to do with ‘channeling’ or whatever excuse du jour is floated by the factories. If you need any evidence, I highly recommend a replay of the congressional testimony of Press and Henderson. Both of them took enormous pains to avoid perjuring themselves and charges of misleading the congress. Nobody in the room (and I know several)thought for a second that they were telling the truth.

    The blame is shared, IMO, between the task force and the factories. The task force saw the dealer body as being a constituency that was not aligned with the party in office, and delegated the process to the factory folks. The factory folks used the opportunity to often settle scores, plain and simple. At Chrysler, for instance, the decisions were made at a surprisingly low level in many cases–almost the entire senior level of the company was in the process of leaving for greener pastures (Nardelli, Landry, et al).

    As a taxpayer, the far better option would have been to continue with the philosophy that has worked for nearly a century when it comes to automotive distribution–it’s called the free market. Weaker dealers eventually sell out to stronger ones. It doesn’t happen overnight, but the contrived termination process currently playing out shows that the only alternatives involve hard landings and unintended consequences.

  • avatar
    at40

    motownr:

    To quote you….
    As a taxpayer, the far better option would have been to continue with the philosophy that has worked for nearly a century when it comes to automotive distribution–it’s called the free market. Weaker dealers eventually sell out to stronger ones. It doesn’t happen overnight, but the contrived termination process currently playing out shows that the only alternatives involve hard landings and unintended consequences.

    This couldn’t be any more plainer and the truth. What is your opinion of HR 2743 and s 1304….and what do you think of Laneve a few weeks ago asking dealers not to support it as well as the Mr. Paddock ( turn-coat dealer ) and his letter.

  • avatar
    at40

    and yes I know LaNeve and Paddock personally and am sickened by both of them.

  • avatar
    GS650G

    When GM and Cry-sler get smaller both in production and vehicle size there will be fewer dealers as a natural byproduct because consumers are not going to buy these little shit boxes. If people want a good shit box they get it from the Japanese or the Koreans who can at least make a decent one.

    This letter to the dealers looks like a version of card check. “Please lend your support to a movement to make sure we can stick it to the other dealers. We promise not to do the same to you in the future.”

  • avatar
    at40

    Ah….but noone is ever safe.

  • avatar
    motownr

    at40:

    Thank you for the kind words.

    If anything is certain in politics these days, it is that nothing is certain.

    In regard to LaNeve & Henderson et al at GM, they are taking orders from politically aspiring, 30-something task force members who know next to nothing about the business, but hold the power to fire them (and, IMO, eventually will). It’s hard to take anything management says at face value.

    FWIW, Chrysler is worse off. The Fiat straw purchase, near-term product weakness and the lack of viable floorplanning is all old news. An equally important story is there is little management with any kind of substance left: everybody who could ride the LaSorda train to Penske/Saturn already has left, and Press is widely believed (hoped?) to be on his way out. A comparative disaster.

  • avatar
    Pch101

    The captives have historically been goldmines for the factories, not liabilities.

    When dealers could move inventory, they were a benefit to the manufacturer.

    Now, there are too many of them to be a benefit. If the taxpayer wasn’t providing the DIP money, the manufacturer’s cost of debt needed to float the dealers would exceed the interest rate that they would collect on it. (Of course, that’s something of a wash, because it’s the manufacturer who is writing the checks for the holdback, which pays for some of that interest.)

    And then, when the dealers can’t sell the cars, guess who pays for the incentives? The manufacturer. Which now happens to be the taxpayer.

    Every extraneous dealership just raises the debt load of the captive financing company, which is owned by us, the taxpayer. In order to keep each individual dealer stocked with adequate inventory, they will need to overproduce, a cost that will be borne by us, the taxpayer.

    It’s unfortunate that the taxpayer has been stuck with so many costs, and now the unneeded dealers want to suck even more money out of us.

    If I were the government, I’d allow the dealers to return to the network on the condition that they pay cash for the inventory prior to taking delivery, and that they require zero floorplan financing from the captive financing company. If they can be truly self sufficient, then they would be an asset to the company, more power to them.

    Of course, if this were to be proposed, there would be no takers on the dealers’ side. What the dealers want most is access to the financing float, and the holdback, and the incentives. If the average American understand how dealerships make money, they’d see through this dealership howling routine for the scam that this is.

  • avatar
    at40

    PCH101….

    WHAT????

  • avatar
    motownr

    @pch101:

    Respectfully, your version of the process is simply incorrect on almost too many levels to adequately address in a reasonable manner.

    At the heart of the matter is not distinguishing between an automaker and a finance company. Because of this, you attribute actions to one that in reality have nothing to do with its true function.

    You first are confusing the roles of an automaker like GM and a finance company like GMAC. They are separate entities with vastly different roles, related only by their common participation in the auto sector.

    The DIP financing you reference is for the bankrupt automaker (GM), which produces vehicles but does NOT finance dealer inventory. THAT’S what (not-bankrupt GMAC) (or GECC or Chase) does. GM used to wholly own GMAC, which likely is a source of confusion, but even then it was as a separate company.

    Inventory at the dealer level impacts each party far differently than you suggest. First, the floorplan loans of a lender like GMAC are not ‘debt load’ as you suggest, but assets. Second, ‘captive finance companies’ don’t overproduce because of too many dealers requiring ‘adequate’ inventory–the AUTOMAKER overproduces because it forecast more demand than actually materialized. The actual number of dealers has little to nothing to do with the matter!

    They (automakers)DO use incentives to (hopefully) bring supply back into balance with demand, but you have mistaken causation with association.

    You also are confusing the drivers of cost of funds. CoF for both an automaker and a finance company is a function of the public capital markets, but driven by vastly different variables, as you might expect. GM’s access (former access to be more accurate) to the debt markets is/was driven by things like it’s debt/equity ratio, profitability, etc., relative to other auto manufacturers, NOT lenders like GMAC.

    GMAC is tied to the firm’s credit rating in the capital markets, which is closely tied to the credit quality of the firm’s loan portfolio(s). GMAC’s problems, for instance, stem from a combination of lax standards across a wide range of sectors, notably real estate, that resulted in the firm being cut off from credit at any price. The firm required a bailout via the TARP program not because of dealers not selling cars, as you state, or because of insufficient net interest margin, but because GMAC was grossly negligent in providing fiduciary oversight of the capital they were charged with managing, and consequently was told “no more for you” by the markets.

    The dealers aren’t ‘sucking off’ the taxpayers as you state: it’s the automakers and GMAC (and numerous banks) that are currently recipients of taxpayer bailouts.

  • avatar
    RogerB34

    NRA was found to be unconstitutional by the Supremes.
    Now, Obama and a Federal judge have trampled the rights of lenders.
    In the name of Social Justice.

  • avatar
    Pch101

    At the heart of the matter is not distinguishing between an automaker and a finance company.

    In real world terms, there is no distinction. We own them both. We are floating them both. GM and GMAC are both burdens on the taxpayer.

    The DIP financing you reference is for the bankrupt automaker (GM), which produces vehicles but does NOT finance dealer inventory.

    It is used to support the business that builds the cars that people don’t want and the incentives used to dump them.

    Again, there is no distinction between the automaker and the finance company. Forget that line of argument, it’s deeply flawed and misses how car companies used their finance subsidiaries to conceal losses generated by the unwanted inventory, which required dumping via incentives.

    the floorplan loans of a lender like GMAC are not ‘debt load’ as you suggest, but assets.

    Absolutely wrong. The same reason that dealerships are a burden to the captive finance company/ automaker is the very same reason that banks have responded to the credit crunch by cutting credit lines — being stuck with the obligation to make a loan to a customer is a burden to whatever bank that doesn’t have the money.

    Compare the cost of your floorplan to the yield on a GM bond prior to the bankruptcy. Notice how the floorplan is at a lower rate than the bond yield.

    If it weren’t for Uncle Sam’s beneficence, GMAC would have to borrow money in the open market in order to cover the floorplan obligation. Paying double digit amounts for money in the bond or finance market, only to lend it to a dealer for something close to prime rate (single digits), ensures that virtually every sale is a money loser. The margins on the vehicles won’t cover the spread on the debt service.

    Without the taxpayer, GMAC would be out of business. So yes, every single dealer is being subsidized by the taxpayer. The government should be selective in who gets to stay, because now they need to earn their keep.

    The dealers aren’t ’sucking off’ the taxpayers as you state: it’s the automakers and GMAC (and numerous banks) that are currently recipients of taxpayer bailouts.

    If you really believed that, then you would operate without the use of manufacturer-sponsored floorplan. But you know as well as I do that you wouldn’t make any money if you did.

    The fact that you can only make money thanks to a government-bailed out captive finance company is a huge hint that the dealers are big beneficiaries of the bailout.

  • avatar
    yankinwaoz

    Let’s call it the No Dealer Left Behind Act.

  • avatar
    at40

    PCH 101

    You are so way off the mark my friend…but since this is an open forum that all I will say.

    Way off the mark!

  • avatar
    jznzfs

    Didn’t Hitler also require a loyalty oath? SCARY!!!

  • avatar
    motownr

    @PCH:

    I recall you being very informed on the relative legal merits of the bankruptcy cases, so you may have a legal background (a likely a very good one at that). However, your business knowledge in this specific industry is incorrect.

    Dealers are not the liability you seem eager to claim them to be, either to the automaker or the finance company. Furthermore, the problems at the manufacturing and finance level are not caused by the dealers–a key error in your argument.

    As someone whose taxes went toward my own government taking my personal property away (franchise), I am acutely aware of the downsides of taxpayer bailouts. However, the dealers are not the culprits here.

  • avatar
    at40

    Motownr:

    Amen to that….dealers are not the culprits. And I can tell you from my perspective….and I am a dealer that is a wind-down in one case and a move forward in another…and both at the same location…go figure.

  • avatar
    Pch101

    Dealers are not the liability you seem eager to claim them to be, either to the automaker or the finance company.

    Where do you think that the capital to support the loan programs comes from? Unless you think that GM has a license to counterfeit money, you need to acknowledge that lenders require capital.

    GMAC and GM are cash poor and have poor credit ratings. That reduces their ability to borrow money and raises the price of what they can borrow; were there no DIP or TARP money, they would be dead.

    They only have the cash that they have because of the government. If they paid market prices for money, they would be unable to loan it to you for less than they pay for it. So every loan already has a loss built into it, which is only disguised because of the taxpayer.

    The automaker and its Siamese twin captive finance company simply can’t afford to carry you. Your view is far too insular and self-interested.

    Again, get your own floorplan and pay cash up front for inventory if you really think that you’re such an asset. If you can’t pay up front and obtain your own funds, then you are being subsidized, whether or not you care to admit it.

  • avatar
    at40

    PCH101….

    Do you care to share you background in either a specific or abstract way….

    Thanks

  • avatar
    Pch101

    Do you care to share you background in either a specific or abstract way

    I’m not sure what that has to do with the topic.

    You’ve sniped quite a bit at my points, yet you still haven’t explained to the readers here why you would expect a company that is broke to have deep pockets full of cash that it can use to make loans to you.

    If you had a friend or relative who was stone cold broke, would you expect them to have cash sitting around to lend you, or would you understand if they declined the opportunity to make loans to you? Do you believe that a broke person would be burdened by making you a loan, or not?

  • avatar
    sermgreby

    PCH101

    I do not understand where you are coming from that GM should cut dealers that floor plan with GMAC, which by the way they only own a small portion of now.

    GMAC is in the business of loaning money to both consumers to purchase cars and dealers to floorplan with. This represents profits to GMAC. For a long time GMAC made money even when GM was loosing money on the sale of cars.

    A lot of dealers do floorplan with other sources and they got wind down agreements also.

    Remember it was not the dealers or GM for that matter that caused the credit markets to freeze up.

  • avatar
    bogyd22

    Well you didn’t kill us by putting us on the cut list so now you are aking your so called good dealers to write the congressman and stop the dealer economic right. Most of the smaller dealers they are terminating are profitable. You are cutting these dealers so you bigger dealers might actualy become profitable. GM’s problem is not the small dealer or any dealer as far as that goes. I think they should let it up the the dealer to make or break. This is a free country, I pay taxes, Let the economy decide who goes out of business, not Government Motors executives. Where has our freedom gone? Obama is ruining this country just like Henderson is going to ruin GM Again.


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