Bailout Watch 565: Small Business Adminstration Dealer Bailout Grows

Robert Farago
by Robert Farago

Car dealers are some of the most politically connected people in America. As we reported yesterday, more than a few axed GM store owners demonstrated their political muscles by forcing the nationalized automaker to rescind their franchise terminations. Further back in time, we highlighted the Obama administration’s “stealth” dealer bailout: a car dealer-specific Small Business Administration (SBA) loan program. Under the program, the SBA guarantees 75 percent of a car dealer’s floor-plan line of credit, ranging from $500,000 to $2 million. The SBA’s network of private-sector lenders make the loans. In theory. In practice, it’s been what the Brits call a damp squib. Although Automotive News [AN, sub] fails to put any hard numbers to the program’s failure, they acknowledge that the SBA dealer deal “has had trouble attracting lender participation since its May launch.” Needless to say, the “answer” to the SBA lenders’ entirely understandable reticence/prudence is . . . bigger loans and more federal backing.

The House measure [passed yesterday by a 389-32 vote] would provide federal guarantees of as much as 90 percent on these loans through the end of September 2010 . . . The administration wants loan limits of $5 million and permanent federal guarantees of 90 percent.

To be fair, the higher limit will make the program much more attractive to cash-strapped dealers. Only 30 percent of American auto dealers have vehicle inventories worth less than $2 million, the current maximum line of credit available through the SBA.

Then again, let’s revisit the reason for the [relatively] low loan limit and the limited federal guarantee [via The Charlotte Business Journal].

[Associate administrator for the Office of Capital Access Eric] Zarnikow says the SBA decided to offer a lower guarantee on floor-plan loans because the agency has never made those types of loans before and didn’t want to take “undue risks” on a new, pilot program.

Also, to be honest, why are the feds “investing” in car dealers anyway? And what’s the cost of this program? I mean financially, not politically.

Robert Farago
Robert Farago

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  • AMXtirpated AMXtirpated on Oct 31, 2009

    If you've ever looked out a passenger jetliner window with a view of the wing during a takeoff or approach, if the meteorological conditions are right, you'll see pretty much the same thing - water vapor condensing in low pressure regions created by the passage of the aircraft. Either that, or this B-2's got a Hemi.

  • Carsncars Carsncars on Oct 31, 2009

    Like AMXtirpated said, Prandtl–Glauert singularities can happen at speeds significantly lower than the speed of sound, and should not be used as an indicator that an aircraft has broken the sound barrier.

  • Leonard Ostrander We own a 2017 Buick Envision built in China. It has been very reliable and meets our needs perfectly. Of course Henry Ford was a fervent anti-semite and staunch nazi sympathizer so that rules out Ford products.
  • Ravenuer I would not.
  • V8fairy Absolutely no, for the same reasons I would not have bought a German car in the late 1930's, and I am glad to see a number of other posters here share my moral scruples. Like EBFlex I try to avoid Chinese made goods as much as possible. The quality may also be iffy, but that is not my primary concern
  • Tsarcasm No, Japan only. Life costs by Rank:#1 - House (150k+)#2 - Education (30k+)#3 - Automobile (30k+) why waste hard earned money in inferior crap => Korean, Chinese, and American cars are trash. a toyota or honda will last twice as long.
  • Tassos In the 90s we hired a former PhD student and friend of mine, who 'worked' at GM "Research" labs, to come work for us as a 'temp' lecturer and get paid extra. He had no objection from GM, came during the day (around 2 PM), two hours drive round trip, plus the 1.5 hour lecture, twice weekly. (basically he goofed off two entire afternoons out of the five) He told me they gave him a different model new car every month, everything (even gas) paid. Instead of him paying parking, I told him to give me the cars and I drove them for those 90 mins, did my shopping etc. Almost ALL sucked, except the Eldo coupe with the Northstar. That was a nice engine with plenty of power (by 90s standards). One time they gave him the accursed Caddy Catera, which was as fun driving as having sex with a fish, AND to make it worse, the driver's door handle broke and my friend told me GM had to pay an arm and a leg to fix it, needed to replace almost the whole damned door!