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Rebuilding Floorplan Financing

January 2010, F&I and Showroom - Cover Story

by Gregory Arroyo - Also by this author

Between the push to restore dealers’ rights, efforts to loosen up consumer financing, and what’s happening on the financial reform front, there is a campaign underway to restore a key industry lifeline: dealership financing. On the frontlines of this push are Doug Greenhaus and Paul Metrey.

Greenhaus, director of environment, health and safety for the National Automobile Dealership Association (NADA), is at the forefront of the industry’s attempt to reopen dealer financing through the Small Business Administration (SBA), a federal agency that came to the industry’s aid during the 1980s recession.

“I’ve been here for over 20 years, and I’ve never seen a year like this and I hope to never see it again,” Greenhaus said. “One of the things we did in the fall of 2008 was to go back and research things that were done in the 1980 timeframe. What we found was a similar situation with the SBA, where the NADA, working with Congress and the president, worked hard for some special accommodations. The crisis this time around is obviously more severe.”

Metrey, director of regulatory affairs for the NADA, is leading the industry’s charge to reopen the asset-backed securities market, a key source for funding for many of the major players in the industry. He and his team were instrumental in making sure retail, lease and dealer financing were included in the Term Asset-Backed Securities Loan Facility (TALF), which was created in late 2008 and began making loans last March. According to Metrey, the most urgent objective is to get lawmakers to expand TALF beyond its March 31 deadline.

“We certainly need to continue to make the case for why this is important,” he said. “When you hear that economic conditions are becoming more favorable, it should not be overlooked that floorplan lending remains a significant concern for dealers.”

The NADA’s effort to educate policy makers about the dealer business is the immediate goal, but the ultimate objective is to restore lender confidence in the auto business. But as Greenhaus said, “We can provide the water and make the water as nice as we can, but if the horse won’t drink …”

Buying a Lifeline

The NADA estimates that the industry has lost approximately 2,000 dealers since the recession took hold about a year and a half ago. And while the association’s phones aren’t ringing off the hook like they once did, stories of dealer losses continue to dominate the headlines of local newspapers throughout the country.

On Dec. 1, The Daily Inter Lake in Montana published an article detailing the closure of Kalispell’s Scarff Auto Center. The dealership was one of the 1,124 General Motors dealers that learned last May that its franchise agreement would not be renewed beyond October 2010. On its Website, the dealership listed three factors that led to its closing after 16 years in operation, one of which was a “major change in attitude among banks toward the dealer business.”

In another story published in the Pittsburgh Tribune-Review, Michael “Mick” Wolcott talked about his battle to secure mortgage loans and a permanent line of credit for his two Chrysler dealerships. He told F&I and Showroom that his situation is not as dire as it is for others in his area.

“I’m in a more fortunate position than a lot of dealers in Pittsburgh,” he said, after telling a story about a dealer friend of his who was rejected by six different banks for dealer financing. “It’s like the perfect storm. We’re being hit from all sides.”

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