GMAC is facing mounting criticism (lawsuits to follow) for suckling on Uncle Sam’s teat for $6B, then turning around and cutting car dealers off at the knees. And so, on the same day TTAC takes GMAC to task for doing the dirty on dealers, on the same day ChryCo CEO Bob “The Prowler” Nardelli is out and about, sniffing around the federal trough for even more bailout bucks for Chrysler’s former captive lender, GMAC has issued a press release defending its “death to dealers” policy. I mean, newfound financial probity. Color me unconvinced. As one of our Best and Brightest pointed out, where there’s smoke, there’s mirrors. (Grammarian mulligan evoked.)
Wholesale Financing
* GMAC is currently doing everything it can to provide broad-based funding support to auto dealerships during these very difficult times. For example, despite the tight credit markets, GMAC continues to provide wholesale financing for about 75 percent of GM auto dealers – a level consistent with the past five years.
* Dealers are not required to finance their wholesale inventory with GMAC; they are free to choose any lender. However, we recognize that many banks and financial institutions have ceased to offer auto wholesale financing given the strained credit markets and uncertainty in the industry. GMAC is working to preserve such funding for its existing wholesale dealer accounts.
* GMAC currently extends over $20 Billion in wholesale financing to U.S. dealers.Dealership Default
* The stresses facing some automotive dealers today are the result of the U.S. economy in recession, a weakened auto industry, and inadequate sales for some dealers to meet expenses and manage debt.
* We work with dealerships facing financial difficulty that have GMAC loans, but cannot extend credit indefinitely if there is a default or significant risk of loss. In our 2008 financial report, GMAC increased its loss reserves for impaired loans from the prior year – from $8 million to $138 million – due to anticipated U.S. dealer defaults.
* GMAC’s approval as a Bank Holding Company and TARP funds came with additional government oversight of our credit risk management process, which must operate in accordance with safe and sound principles. We must continue to protect our capital when the risk of loss appears too high.
* When GMAC cannot resolve with the dealer its concerns over wholesale pay-off performance, profitability and operating trends, and is unable to continue wholesale arrangements, the dealer is given 90 days to locate an alternative lender.
* If a dealership cannot meet its commitments and cannot raise additional capital or find alternative financing, then in some cases, the dealership owners – not GMAC – may make a decision to close the dealership.
* People in some local communities have spoken out in support of dealers that are facing closure. We certainly recognize the contributions by dealers to their local communities. In many cases, it is unfortunate that the vocal support has not translated into sufficient vehicle sales to sustain the business, likely due to the difficult economy. No business can survive withoutcustomers, even with the best of lenders at their side.GMAC Curtailment Policy
* Wholesale financing is a revolving credit line secured by individual vehicles. As vehicles age, their value decreases and the loan risk increases. Requiring a portion of the loan to be repaid after a period of time – known as a curtailment – is not new for GMAC and is standard practice for any collateral-based lender.
* Until recently, GMAC did not need to extensively enforce its curtailment policy, because there was not a lot of aged inventory in the system. Today, the situation is different. With the significant reduction in auto sales, there are growing numbers of aged vehicles on dealer lots. Curtailments are required for GMAC to manage the risk of lending against this aged collateral.
* Dealers who effectively turn their inventory either avoid paying any curtailments, or pay very little.
* GMAC considers its curtailment practice on new vehicles to be fair and reasonable, and General Motors recently indicated that GMAC’s policy is actually more lenient than that of other wholesale lenders.
o GMAC requires monthly curtailments only on past model-year vehicles (new 2007 GM models and any new 2008 GM models financed for over 18 months).
o Additionally, GMAC only requires a percentage of the loan (10 percent/month) to be repaid monthly on aged inventory, rather than requiring full vehicle payoff after a certain timeframe like some other lenders.
* Regarding used vehicles, the majority of GMAC wholesale dealers are not required to pay any curtailments until a used vehicle has been financed for six months. Further, most dealers are not required to pay off a used vehicle until it has been financed for one year.
Typical of the banks right now. Hard-nosed with the customer while at the same time feasting from the federal trough themselves.
Notice there isn’t a hint of GMAC’s relationship with GM or Chrysler and the fact that these parent companies have been cramming inventory into the dealers.
This stuff is going to be in the courts for years.
No business can survive without customers, even with the best of lenders at their side.
Truer words never spoken…er, issued. Seem like it maybe applies to more than just dealerships?
GMAC is now enforcing their existing policies regarding aged inventory. Remember, the dealer is paying down their inventory. After a year or more, the financed vehicle’s value has depreciated. GMAC is keeping their portfolio up to date. In a way, it actually helps a dealer to turn their inventory quickly and keep “fresh” product on the lot. Believe me I know. Just took a $20,000 loss on wholesale vehicles so far this month. On the flip side, my dealer’s cash flow will be minimally impacted come April 1. Just looking for the silver lining I guess.
where there’s smoke, there’s mirrors
Dammit, why didn’t I think of that?
*storms off*
Anyway, this whole Detroit 3, bailout blah blah is turning into a saga worthy of an opera. I can just imagine some portly gentlemen singing the woes of the dealer.
Considering GM stupidly gave Cerberus 51% control of GMAC GM no longer calls the shots, Cerberus does. For years it was an unwritten rule that dealers use the captive finance arm for their floorplan. The dealer was certain to get more marginal retail deals bought that way. Today GMAC exists for Cerberus to profit from firstly everything else comes second. A friend of mine was recently approved by GM to buy a Chevy store but GMAC wouldn’t provide floorplan and of course neither would any of the banks. Result? No deal and the store gets closed. There is no doubt GM will use GMAC to close stores but then again that’s exactly what they need to do.
The dealers are going to lose this one as GMAC ‘enforces’ rarely used clauses and loan covenants.
Bottom line. The dealers signed up for all this – GM can’t market a car worth a @#%$ but all those lawyers and MBA’s DO KNOW how to make a contract.
I’m betting that in better times these draconian terms and conditions were just dismissed by both sides with a wink and a nod as some sort of We would never do THAT. Now that times are tough GMAC is going by the letter of the law (contract law that is).
“A friend of mine was recently approved by GM to buy a Chevy store but GMAC wouldn’t provide floorplan and of course neither would any of the banks.”
Your friend was most likely not worthy of credit. Therefore, GMAC did everyone a favor by bouncing him.
the puppet Red Ink Rick is out to control distribution same as he’s out to relocate production offshore. build ’em overseas and sell ’em on the net. that’s been the plan all along and why the banks are harboring money. it’s all a scheme being played on America. time to wake up folks!
Anyway, this whole Detroit 3, bailout blah blah is turning into a saga worthy of an opera. I can just imagine some portly gentlemen singing the woes of the dealer.
Substitute a fat lady for a portly gentleman and you might have something.
You people dismiss a persons life’s work easily. All dealers are not as you make them out to be. Sorry for your past problems. Now go ahead and reply indignatly.
@Buickman And?
Realistically, dealers offer no value to the transaction. In the past, when the Interweb was a twitch in a DARPA’s committee’s pocket, dealers made some sort of sense, but today? Not really.
I should be able to take the time to ponder exactly what I want, get accurate information easily, order a test drive if I want it, and then place an order for my exact configuration, either choosing one that is *actually* close to me, or knowing *exactly* when it will be delivered to me.
I’m done with having my new cars vandalized by unauthorized pin striping or dealer badges, and feeling the warm, musky scent of a F&I guy breathing sweet nothings down my neck whilst he feels up my wallet from behind, or the Tiffany Unit offering me incredible value rust proofing, tinting or mats.
The dealer’s day is done.
Andrew
Let the lawsuits begin. If you don’t think that thousands of money losing dealers aren’t going to pull the nuclear option and sue the manufacturer, you are dreaming.Dealers see GM and Chrysler taking in billions, but their bottom line and future is fading fast. If GM and Chrysler win every one of these suits in state courts (a dubious proposition at best) they are still losers as the legal fees and injunctions while the suits go on will cripple the two manufacturers. Dealers who have millions invested and years of involvement will not go away simply because they are now “excess baggage”. This was the bankrupcy case scenario’s best point. The suppliers, unions, and dealers couldn’t take Gm and Chrysler down by a thousand cuts of suing to enforce their existing contracts. Well, the Govt. has chosen no bankrupcy, so I guess the next injection of billions will go in part to the “local lawyers recovery fund”. Lawyers are people too, right? Well,they are maybe some form of life. Endangered species have for a long time been given federal support.
@andrew:
” feeling the warm, musky scent of a F&I guy breathing sweet nothings down my neck whilst he feels up my wallet from behind…”
Awaiting your first full-length TTAC editorial. Dang, boy, you can write!
What can GMAC do? It doesn’t matter who it is, the lenders aren’t buying the cars, the consumers are, and not so may of them these days. A lender like GMAC can help make that easier to some extent by taking on more risk or helping GM lose money on cars but they don’t make the sale.
And now GMAC is pointing out that it is the dealers business to lose at. BFD, who didn’t know that.
Any dealer that wants to make it through this recession needs to grab an increasing share of a smaller pie. That guarantees that some dealers won’t make it. Again BFD we already know that.
Seems like it’s kill or be killed for GMAC.
I do have a different feeling for dealers being put out by closing brands but that hasn’t happened yet.