TTAC has long predicted a supplier-led “run on the bank” scenario, whereby suppliers demand COD and destroy Chrysler, GM and (yes) Ford’s life-sustaining cash float. While the automakers have managed to stave-off that eventuality– as suppliers jostle for their position in line at the bailout buffet– it seems that Chrysler dealers are showing the same level of respect to the corporate mothership as the channel stuffing colossus has shown its dealers. The Wall Street Journal reports that “Chrysler LLC’s financing arm has warned dealers it may have to temporarily stop loans that dealers use to pay for stocking vehicles on their lots as a result of a recent wave of withdrawals from a fund used to pay off those loans. In a letter dated Dec. 12, Chrysler Financial Chief Executive Tom Gilman said dealers have been withdrawing up to $60 million a day from the fund…. Gilman said more than $1.5 billion has been withdrawn from the CMA [cash management account] fund since July.”
“Chrysler Financial allows dealers to put money into the cash management account and pays them 2% interest. The money is then used to make payments on the loans dealers take out to buy new cars.”
So Chrysler Financial has been using dealer cash to finance loans its pay to dealers to pay Chrysler for product. Makes sense to me. And now that dealers are withholding that cash…
“Suspending loans for purchasing new-vehicle inventories would be a tough blow for Chrysler. Dealers wouldn’t be able to order cars and Chrysler’s revenue could plunge, since auto makers book car sales when cars are shipped from plants to their dealers.”
And they say the English are the best at understatement.
I’m just about speechless.
Maybe instead of banksters, frauds, con artists, lawyers/liars, PhD’s, “Masters of Business” degreeds, etc etc etc we should actually employ the services of a few 7 year olds to run the world.
Kid A: “I want to buy a toy (car) to sell it for a profit in another school yard. And I know you have some to sell, right?”
Kid B: “Right, yeah. OK, where’s your money?”
Kid A: “I haven’t got any.”
Kid B: “OK. No dice. If you tell me which other school yard, I’ll give you a small cut, though, when I go over there and sell the toy (car).”
Kid A: “Um, how small?!”
See? No ponzi schemes, no flim flams.
Seven year old kids should run the world.
WTF? I don’t get it. If a dealer has some cash, and some debt, and the debt costs more than the cash could earn, then why don’t they pay down the debt?
The only way this would make sense is if Chrysler Financial was charging less than 2% interest on the loans.
Like any other financial institution, if Chrysler wants to offer loans, then they need to attract capital. That means they are going to have to offer better terms to bond holders and depositors.
I sounds to me like Chrysler was subsidizing the loans to dealers in order to sell inventory. They may have been doing this to the point of actually losing money on each loan.
Could Chrysler no long afford to subsidize the loans and raised the price to reflect that? If Chrysler raised the rates they were charging for loans, then it would made more sense for a dealer to take their cash and pay down debt. Perhaps that is what happened.
I don’t get it. If a dealer has some cash, and some debt, and the debt costs more than the cash could earn, then why don’t they pay down the debt?
The dealership business model is built on leverage (borrowing). Instead of laying out thousands of dollars to put a car on the lot at invoice price, the dealer puts out perhaps a couple of hundred dollars per car, borrowing the invoice amount and then some. If the vehicle is sold quickly enough, the holdback should cover the interest charges. This system allows the dealership to control a lot of inventory with very little money, freeing up cash to operate the rest of the business and increasing the return on sales.
The dealers must be expecting a bankruptcy. They are withdrawing their cash because they are afraid of losing it. For Cerberus, this ends up being the equivalent of a run on the bank, because that money would be relent to others within the system if it was kept in the account. Taking one dollar out of the account probably removes several dollars out of the financing system.
Chrysler is obviously in deep trouble. Cerberus can’t or won’t put money into it. At this rate, it’s going to get sold very soon, and at a loss.
“Chrysler is obviously in deep trouble. Cerberus can’t or won’t put money into it. At this rate, it’s going to get sold very soon, and at a loss.”
pch101
Or – closed down for good then sold piece-meal. As in, the only thing worth selling will garner a little money to help pay down the debts incurred.
Jeep brand/Toledo plant/Wrangler specifically and maybe the V6 engine tooling for Wrangler.
Maybe the Mexican pickup plant and Hemi V8 plant IF Nissan can get it for a song.
Maybe the Viper plant and brand.
Minivans? Why? Better minivans are already out there – Honda, Toyota.
Chrysler is just about dead, and even the dealers apparently know it.
Hmm, I’ve been watching the local Chrysler dealership whither. It is conveniently located next to a liqour store, so I have occasion to see if often enough. They have no more than a dozen new vehicles on hand. And about 50 used ones (also down in numbers). Their lot is half empty. Looks very much like a winding up scenario.
I wouldn’t be too surprised if Chrylser had “required” dealers to keep certain funds on deposit. If you think about it, the dealers needs to keep his cash in some kind of a bank, somewhere, and would probably make payments on their inventory loans from that account.
Odds are, someone thought that Chrysler could just as easily be that bank, and probably save a lot of money by eliminating transaction fees with outside banks.
With dealers needing the cash, and not ordering ore cars (thereby not need to heed the rules anymore) they take it out of the “bank.”
Minivans? Why? Better minivans are already out there – Honda, Toyota.:
A friend’s sister bought a brand new Chrysler minivan for $13k, including a trade-in (which she owed money on). You can’t beat that deal on that vehicle, it’s well worth $13k.
Pch101: Chrysler is obviously in deep trouble. Cerberus can’t or won’t put money into it. At this rate, it’s going to get sold very soon, and at a loss.
Didn’t Daimler basically pay Cerberus to take Chrysler off of its hands? Can Cerberus even give the company away at this point?
Didn’t Daimler basically pay Cerberus to take Chrysler off of its hands?
Cerberus basically got it in exchange for investing its purchase price into the company. Net net, Daimler didn’t end up pulling cash out of the deal.
Nissan will want the Dodge trucks and maybe want the new Chrysler EV’s. Nissan just announced their shut down their truck production in Mississippi, so they’ve telegraphed their punches.
It’s a tough balancing act for Cerberus. They need the dealers for their channel stuffing, but can’t stuff the channels if they can’t get the dealers to floorplan the inventory.
The dealers have long served as a dumping ground for the domestics to hide their inventory management problems, but that whole scheme is unraveling without the financing and dealer network to support it. Once something like this blows, it has to spiral downward very, very fast. They are really at the end of the line now, if this doesn’t stop.
Chrysler Financial pays 2% over floorplan rate of charge. CF charges lets say 7%. 7+2=9
You pays your money, you takes your chances.
Sincerely,
The car buying public
Nothing surprising here. Dealers know the mothership is sinking. They know their steamer trunk is lost.
But they’d like to grab their Reeboks while they can.
One more Cerberus dealer rolled up the carpet yesterday in my neck of the woods. Think that leaves my metro area with 4.
Swirling the Toilet bowl.
I maintain that one of the detroit 3 must die so the others may live. The pentastar was always my choice in that regard.
Nissan has been talking about entering the commercial market for some time now and picking up a 3/4 ton and one ton truck production, along with associated diesels would work out quite nicely towards that goal.
The new Ram is quite a nice truck (to my suprise), so I must admit that Nissan has to be the most likely choice to pickup that part of Dodge.
But my concern for Chrysler is this: If it is chopped up and sold in pieces, will there be enough to pay Nardelli his $100 million that he earned for his outstanding service as the Chrysler CEO, just like he did as the Home Despot?
One of the crazy things about the car business is that the manufacturers have been getting paid on delivery rather than net 30 or better as is customary with most manufacturer/retailer relationships.
Floor planning was part of the system which made this all possible.
The whole thing is a tangled web which is coming undone.