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.

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?

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

Thanks

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.

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.

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.

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!

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.

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.

WHAT????

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.

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.

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.”

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.

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.

PCH 101…what are you?

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.

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.

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.