Bob,
Any owner insights on this:
09 Car dealers' next headache is inventory loans - WSJ
WSJ reports for Chrysler and General Motors (GM) dealerships, slow sales are just part of their worries. Now they're bracing for possible auto-maker bankruptcy filings that could trigger repayment of their inventory loans. The two auto makers have about 10,000 dealers in the U.S., with the bulk of them carrying considerable debt, mainly from the money they borrow to buy cars that sit on their lots. If Chrysler or GM were to file for bankruptcy protection, the banks extending that credit could immediately begin calling dealer loans, demanding a good portion of the money back and refusing to extend any more inventory financing. U.S. taxpayers, meanwhile, could be called to the rescue. At issue are loans for inventory, known as "wholesale" loans or "floorplan" financing, that are primarily given by GMAC and Chrysler Financial to dealers so they can buy vehicles to stock their showrooms. These loans are typically backed by the vehicles that are being financed by the dealer and paid back when the vehicles are sold. Chrysler Financial and GMAC, run independently and answering to different shareholders, have "clawback" provisions that allow the finance companies to demand at least partial payment of the loans in the event of a bankruptcy because the value of the vehicles being used as collateral would plummet. Other lenders are believed to have similar provisions. |
