Financing problems squeezing auto dealers
The No. 1 struggle for New Hampshire auto dealers right now is getting financing – not for their customers, but for themselves.
“If you don’t have the money, you can’t buy cars from the factory,” Nashua dealer Jack Tulley said Wednesday.
Dealers rely on a unique method of lending known as floorplan financing to keep their lots stocked with cars, but banks are pulling out of that business because they consider it risky, Tulley and other local dealers said in an interview with The Telegraph editorial board.
Sovereign Bank has already announced that it’s pulling out of the floorplan market, and Citizens Bank – which finances an estimated 23 percent of New Hampshire dealerships – has suggested it might, too.
In the wake of President Barack Obama’s proposal Monday to stabilize the U.S. auto industry and impose more government control on struggling automakers, Nashua-area auto dealers spoke about the plight of the local industry.
In addition to the crisis-level shortage of dealer financing, they discussed a legislative effort in Concord to help dealers who are going out of business and how a bankruptcy of major automakers would impact the Granite State.
Peter McNamara, president of the New Hampshire Automobile Dealers Association, said 14 dealerships have shuttered in the last 14 months and more are expected to follow.
Many of those dealers were not reimbursed by the manufacturer for their remaining inventory of new cars and parts, even though they were contractually obligated to buy them, McNamara said. However, a bill moving through the state Senate would change that.
Senate Bill 153 looks to add a provision to the “Dealer Bill of Rights” that would require manufacturers to buy back inventories from dealers who decide because of economic conditions to go out of business or transition to selling used cars only.
“Everything looking to get repurchased are things a franchise said the dealer had to buy,” McNamara said. “The last thing dealers want to do is break their manufacturer’s back.”
The law, which has yet to go to a full Senate vote, would apply to just a handful of dealers, he said, and the manufacturers could disperse the repurchased vehicles among other dealers.
With regard to financing, the dealers interviewed said loan options for dealers are dwindling. Without a new source of funding or changes to the current funding structure, there could be more closures and job losses, they said.
The floorplan model of financing is unique to certain industries. In the auto industry, it allows new-car dealers to take out a short-term loan to pay for their inventory and then pay that loan down as individual cars are sold. This allows dealers to buy cars without having to put up cash upfront.
The dealers explained that floorplan financing is only available through the larger regional and national banks or carmaker financing companies such as Toyota Motor Credit Corp. or GMAC, General Motors’ financing arm. Local banks don’t do that kind of lending, and now many regional banks are looking to move away from floorplan financing or denying any new applicants.
“The unique problem we have as dealers is finding new sources of funding,” said Peggy Proko, dealer at Peters of Nashua. “Banks aren’t even taking applications for new floorplans.”
McNamara said the solution to the problem is three-pronged: extending Small Business Administration loans to cover floor financing, encouraging local banks to stay in the floorplan market and securing the floorplan market at a national level.
Not surprisingly, all three dealers said their sales were down from traditional benchmarks. But they agreed there has been some improvement lately in customer interest and sales.
“Any day we’re going to look into the rearview mirror and say, ‘Hey, we hit rock bottom two weeks ago,’” said Tulley, whose dealership sells GM products, BMWs and Volkswagens.
Andy Costello of 1400 Motors of Nashua, which sells Chrysler, Jeep and Infiniti models, said in better times, he sold about 55 Jeeps per month. Last year, when the economy started spiraling downward, that dropped to 40 or 45. In October, at the peak of the financial crisis, he sold eight. By December, sales rebounded to around 30, and by March that number had reached 40 again, he said.
Despite all the national attention on U.S. automakers, the lag in sales has affected imported cars, too.
Costello said he sold more Chryslers than Infinitis last month.
Proko, of Peters of Nashua, which sells only foreign brands such as Honda and Nissan, said sales are off about 10 percent and the dealership is down from 152 employees to 138.
However, the dealers said they were generally pleased that the auto industry is receiving so much attention from Washington and that the government is willing to guarantee car warranties if companies go bankrupt.
McNamara said the best possible solution would be for the automakers to work through their problems without bankruptcy.
However, Costello said he believes a government-controlled bankruptcy is better than a regular bankruptcy. And Tulley said he believed GM would emerge from a bankruptcy as a strong company, although there would be fewer dealerships in New Hampshire and across the country, along with fewer brands available to consumers.