GMAC and GM Screwing over their Dealers by repossessing Inventory?

[RamboLiberal]

Sure sounds like it in this story about one Eastern PA dealer.

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In May, when GMAC first said it planned to drop his loan, Eckenhoff negotiated the first of several extensions and searched for another lender to finance his inventory - a task made even harder after the financial markets crashed and banks became far pickier about loan policies.

The third-generation car dealer cut inventory, slashed expenses, and tried to raise cash. Two months ago, he laid off 48 workers to bring expenses in line with low sales.

Eckenhoff was not alone; other area GM dealers have been squeezed by tightened lending as GMAC has sought to trim its auto portfolio and make up for losses it suffered in the subprime market.

Some franchise owners are trying to sell their dealerships while others are rolling the dice and trying to hang on.

GM has told Congress it plans to eliminate a quarter of its dealerships by 2012.

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This is why some locals suspect GMAC is working with GM to clamp down on sites that GM would like to see eliminated from the grid - even though GM has not released a list of targeted dealerships.

http://www.philly.com/philly/hp/news_update/20081228_Cars_leaving_lots_without_drivers.html

[navarth]

1. ouch. that is UGLY indeed.

a lot of hurt coming before things get better, I fear

[tammywammy]

2. GMAC can pull the floorplan for certain events

If the dealer isn't paying off sold vehicles within a specified time period (24 hrs normally), if their dealership is running well into the red, etc.

GM dealers do not have to have their floorplan with GMAC, they can do it with any bank that does floorplanning. If they cannot get it done with another bank, it's because they're a risky investment.

If they have violated paying off vehicles as soon as they're sold, GMAC can rightfully pull the floorplan, and if the dealer doesn't get it set up with someone else, then yes they can reposess the inventory. Whomever does the floorplan owns the inventory, not the dealer.

But if a dealer no longer can get financing for their floorplan, then they would be in violation of their Sales & Service Agreement with GM and that can be terminated as well.

GMAC isn't the only bank that's tightened up on floorplanning, they all have.


edited to add: And if this dealership was already in trouble in May no wonder they're out of business, because while business has been down all year, it didn't really sink until Aug/Sept.

[PBS Poll-435]

4. Great post

You know the car business!

Toyota, even in the good times, could reduce a dealership's flooring limit or eliminate the agreement all together if a floorplan audit showed some monkey business.

[DainBramaged]

3. If the dealers do not have enough operating capitol, the cars are repossessed

They have to report their monthly financial statement to GM for the reason to make sure they are solvent. When their available capitol falls below the percentage allowed in their franchise agreement, GM takes steps to help keep them afloat. GM would rather take the cars back than have them locked in a bankruptcy sale. And yes, at least 25% of their dealerships will fail in the next 3 years, not because it is GM's fault, but because the laws of supply and demand will reduce the demand for so many dealers in such small geographic areas. It is also why GM "hold back" about $800 per car in gross profit so that the dealers have funds at the end of the year if they are stupid enough to sell cars at invoice.


Where I live, there are 48 Chevy dealers within 50 square miles. Pitiful.

[PBS Poll-435]

5. Toyota has a 2% holdback that is paid monthly.

They have a 1% holdback that is specifically meant to reimburse the dealer for floorplan interest.

They also have a 1% "delivery assistance" payment that is paid at the end of the month in which the car was reported to be sold.

[tammywammy]

6. GM refunds holdback quarterly

And GM wouldn't take the cars back, it's whomever holds the floorplan for the dealership (which isn't always GMAC).