“I don’t see anyone bleeding to death,” Sergio Marchionne told reporters and analysts a week ago, when asked what he thought of Chrysler’s current dealer body. He might be about to change his tune. The US Treasury will stop guaranteeing GMAC’s floorplan loans to Chrysler Group dealers on the 21st of this month, and the bailed-out lender has marked over 100 dealers to be cut off. According to the Detroit Free Press, these dealers had all survived Chrysler’s dealer consolidation efforts in bankruptcy, indicating that their sales business is relatively steady. But because of huge investments made with Chrysler Financial loans at the height of the real estate market, these dealers owe more than their dealerships are worth. Chrysler Financial is winding down its business, and it refuses to give up the first right to the property as collateral. Because GMAC is now a bank holding company and requires more collateral on loans than it previously did, it wants land and buildings put up as collateral that are already securing old Chrysler Financial loans. Of course those old loans were for renovations made as part of Chrysler’s “Project Genesis,” which dealers had little choice but to participate in. If those Chrysler-mandated investments meant certain dealers were not going to qualify for floorplanning, they should have been culled during bankruptcy. Which is why NADA is appealing to Chrysler CEO Sergio Marchionne on behalf of the threatened dealers. And maybe if Marchionne takes a look into this meatgrinder, he’ll see a few dealers stuck between giant, bailed-out businesses, bleeding to death.
GM spokesfolks tell Automotive News [sub] The General is “in the process of re-establishing select points in certain markets around the country as part of our ongoing analysis of our dealer consolidation efforts.” Don’t hurt yourself thinking too hard about that though, because it’s one of those “we must destroy the village to save the village” things. GM is apparently contacting certain former dealers and inviting them to open new dealerships, having already forced them out of business once in bankruptcy court. According to the Committee To Restore Dealer Rights, former dealers in Pennsylvania, Illinois, Michigan, Ohio, Colorado and Massachusetts have been contacted to open new dealerships, in urban and rural markets. Some culled dealers located in areas GM has targeted for new dealerships were not invited by GM to submit proposals, and the CTRDR considers this a play by GM to drive a wedge within the ranks of the culled dealers. Negotiations between GM and its aggrieved former dealers resume tomorrow, and news that GM is re-opening dealers less than a year after it shut down 1,300 won’t be good for their political popularity. And yes, that matters. Meanwhile, details on how many dealerships are being opened are still forthcoming from General “Transparency” Motors.
Well he would say that, wouldn’t he? For one thing, David Cole is a Big Three scion, the son of former GM president Ed Cole. For another, Cole’s “Center for Automotive Research” (CAR) is funded by unspecified automobile manufacturers (guess who) and equally secret “labor organizations” (guess who). You may remember CAR as the organization whose statistically corrupt pre-bailout report took center stage, what with its wildly exaggerated predictions of plague, pestilence and famine—if the feds didn’t throw money at the ailing American automakers. And now Automotive News [AN sub] reports that David is telling Uncle Sam that New GM’s decision to cut thousands of dealers doesn’t make sense. “These cuts didn’t make any sense to me,” Cole told a government toady, whose visit may or may not have been stimulated by a missive impossible to the Presidential Task Force on Automobiles. “By pulling out, GM and Chrysler are giving a beachhead to Ford and some of the imports.” Beachhead? Dude, they’ve been eating Detroit’s lunch for decades. Anyway, speaking of pulling out . . . “Cole said he has no research expertise or experience with dealers, but that his personal interest in the issue was piqued and that he has spoken with a number of dealers and GM executives.” Glad to see that the guardians of our tax money are kow-towing—sorry “consulting” with all the right people in their endless pursuit of political accommodation.
The recent revelation that congresspeople have been successful in coercing GM to rescind dealer closures in their districts, has the rest of our elected representatives (not to mention GM itself) sitting up and taking notice. In a conference call with Michigan’s congressional delegation, Fritz Henderson said GM was close to a deal which would restore a number of “mistakenly” closed dealerships. But GM hasn’t met with rejected dealers in weeks, and the Committee To Restore Dealer Rights is unaware of any such agreement. “[Henderson] was very vague, and the plan sounded inadequate to me,” Michigan Republican Hoekstra tells Automotive News [sub]. “He explained, for instance, that they might reopen some franchises if they found errors, but he didn’t say what those errors might be.” Henderson also rejected the dealer demand for compensation of $3,000 per vehicle sold in 2006, 2007 and 2008, further supporting suspicions that GM doesn’t have a deal at all. So what is happening? Read More >
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 car business literally ceased the day World Trade Center I and II fell back to the Earth. And so the savvy suits at GM created a landmark campaign “Keep America Rolling.” Generous Motors offered 0% interest for 60 months on EVERYTHING they made. Customers had to forfeit their rebates in exchange for 0% interest loans, but my god did it work. The sales rates were staggering. I personally witnessed customers at a Texas Chevy house literally fighting to be next in line to sign papers. The rumor had gotten out that 0% was going to end suddenly; the customers in this particular store believed they were in a race to sign docs before the last 0% credit was used up. That was 2001. Today eight years later, zero percent is BACK on.
The Detroit News reports that car dealers are trustworthy enough (or, more likely, influential enough) to be exempted from the House Financial Services Committee’s recently-passed version of the Consumer Financial Protection Act. The bill, intended to prevent another credit crisis through federal regulation, would have made dealers subject to Consumer Financial Protection Agency oversight had Rep John Campbell (R-CA) not introduced an amendment [PDF] exempting them. David Westcott, chairman of National Automobile Dealers Association’s government affairs committee applauded the move
It makes sense to exclude dealers. Dealers had absolutely nothing to do with the credit crisis. The overwhelming majority of committee members clearly understand that CFPA jurisdiction over dealers is unnecessary and that increased uncertainty in the auto marketplace would limit consumer finance options and increase car buyers’ costs
Penske Automotive’s official explanation for pulling the cord on Saturn was that they couldn’t get a supply deal. Renault-Samsung figured the risks of supplying a reborn Saturn were high, while the reward was (at best) competition with established Nissan offerings. But Roger Penske was putting his company out on a limb as well. Penske Automotive stock had been bid up in the days before the Saturn deal fell apart, as speculators sought to get in on the ground floor of the new company. As usual though, the speculative bid-up was based more in hype and long-term potential than underlying financial realities. Despite a losing over $3 in share price after the collapse of the Saturn deal, Penske’s forbearance is being rewarded. Standard and Poors had put Penske on a credit-rating downgrade watch on fears of the firm over-leveraging to take on Extreme Makeover Saturn Edition. With the deal called off, Penske stock might not have the speculative upside it once did, but it has already doubled this year. And backing away from a potentially messy revival of a troubled brand has PAG headed out of the credit-rating doghouse. And as the man himself has said, “my dad told me a long time ago, it’s not what’s good for you Roger, it’s what’s good for the company.” Meanwhile, Pete “Autoextremist” DeLorenzo figures the Saturn network would make a good upscale network for Hyundai’s Genesis and forthcoming Eqquus lines. A whole network for two vehicle lines? I wouldn’t be holding my breath. Luckily Saturn dealers have had a few years to get used to being unwanted.
AutoNation CEO Mike Jackson has issues with the industry practice of maintaining 50 to 60 days worth of supply of new vehicles. In today’s Automotive News [sub], Jackson advocates for a 30-day benchmark, blasting the manufacturers for their complacency.
What other business accepts the same benchmark for 50, 60 years and says, ‘That’s fine”? As soon as you put the parts together in a vehicle, nobody cares if it sits there for 90 days. And how you can get those ideas together in the same head is beyond me
Disagree? Take a look at the latest Automotive News [sub] inventory report before you weigh in. One example: as of September 1, Buick had a 25-day supply of LaCrosse and a 130-day supply of Lucerne. Cadillac and Lincoln also had no models with fewer than 72 days of supply. It seems this Jackson character is on to something…
Fritz Henderson just confirmed in a conference call that GM’s VP for US Sales Mark LaNeve will be leaving the company by October 15. An email by Henderson obtained by the Detroit News, makes it clear just how long LaNeve outstayed his welcome. There’s damning with faint praise and then there’s this:
Mark has contributed significantly to GM in several key positions, including transforming the Cadillac brand and leading the vehicle sales, service and marketing organization during one of the most challenging periods in GM’s history. Please join me in thanking Mark for his dedication and wishing him and his family well. A replacement for Mark will be named at a later date
It is the time of the season that used car prices fall off. I began following the wholesale used car market in 1996. I distinctly recall a dealer friend of mine, Jerry McKinney, explaining it to me this time of year “Son you better get your nuts in the nest, winter is a comin’.” Translation: a dealer needs to convert any questionable inventory on today’s market to cash. Then take a new position in fresh inventory after the flop hits.
I have no idea why Mark LaNeve still works for General Motors. The former Cadillac man was serving Kool-Aid on the bridge when CEO Rick Wagoner was Richard Nixon channeling Captain Queeg. When Old GM sank into bankruptcy, LaNeve (and Bob Lutz and Fritz Henderson and the whole damn crew) should have gone down with the ship. Instead, they transferred to another boat and headed straight for the same iceberg. No surprise there: hitting icebergs is who they are and what they do. I’m not saying that LaNeve’s recent remarks about culling GM stores [via Automotive News] reveal that he’s wrong to trim the automaker’s bloated dealer network. I’m saying that LaNeve is going about it the wrong way. Here’s my thinking . . .
The Wall Street Journal reports that Roger Penske has pulled out of a deal with GM that would have kept the Saturn brand in business. Per the WSJ report:
The deal called for Penske to initially acquire vehicles from GM but eventually branch out to sell products from Renault SA (RNO.FR) and its Samsung Motors unit, which is based in South Korea. Penske Auto said Wednesday that it negotiated a supply agreement with “another manufacturer,” but that company’s board rejected the deal.
“Without that agreement, the company has determined that the risks and uncertainties related to the availability of future products prohibit the company from moving forward with this transaction,” said Penske Auto.
Reuters confirms the story, adding “GM said in a separate statement it would wind down the Saturn brand and its dealership network.”
Make no mistake: GM and Chrysler went into bankruptcy horrendously over-dealered. GM was carrying more than twice Toyota’s 1500 dealers (with a lot less than twice the market share). The automakers’ needed to cut their franchise network down to size for reasons elucidated here on numerous occasions. The fact that the culled dealers are dogging the federally-subsidized carmakers for cash—well, you, really—is neither here nor there. It’s on YouTube! In their own words . . .
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