NADA Pushes for More Lending in Wholesale Auto Credit Market
Lending to the nation’s 17,000 franchised dealers to purchase new- and used-vehicle inventory continues to lag, making it a top issue for the National Automobile Dealers Association (NADA). The dealer association said that a hearing on Feb. 25 by the Congressional Oversight Panel on the Troubled Asset Relief Program (TARP) highlights the ongoing need to provide more liquidity for auto business lending.
WASHINGTON– Lending to the nation’s 17,000 franchised dealers to purchase new- and used-vehicle inventory continues to lag, making it a top issue for the National Automobile Dealers Association (NADA). The dealer association said that a hearing on Feb. 25 by the Congressional Oversight Panel on the Troubled Asset Relief Program (TARP) highlights the ongoing need to provide more liquidity for auto business lending.
“This hearing underscores a much larger problem: lenders are still too often unwilling to lend to auto dealers to buy cars and trucks for sale to their customers,” said Andy Koblenz, NADA vice president for legal and regulatory affairs.
During the hearing, Ron Bloom, from President Obama’s Automotive Task Force, emphasized the need for action saying that the future of the U.S. auto industry hinges on the ability of policy makers to restore the free flow of credit to auto retailers and car buyers.
“By extending the Federal Reserve’s successful Term Asset-Backed Securities Loan Facility (TALF) and expanding the government’s small business loan guarantee programs, we create the best environment for banks and finance companies to be comfortable lending to dealers again,” Koblenz said.
Utilizing TARP, the Fed created TALF to jump-start and return the secondary loan market, where lenders’ loans are bundled and sold, to a sustainable level so lenders can move loans off their books and access more funds to make additional loans.
In a Feb. 24 meeting with the Federal Reserve Bank of New York, Koblenz outlined the need to continue TALF for wholesale or floorplan loans past the program’s March deadline.
TALF has been successful in getting consumer credit transactions moving again. Credit cards, consumer vehicle loans and home mortgages, among others, have rebounded. Yet, wholesale credit for dealers is still “stymied” for some reason, Koblenz added.
“It doesn’t make sense; floorplan credit is traditionally one of the lowest risk loans a lender can make,” Koblenz said.
The Fed meeting is part of a two-pronged approach by NADA: In addition to its TALF efforts, the other is to boost lender interest in government-backed loans. Already successful in lifting an outdated ban on floorplan lending guarantees by the Small Business Administration (SBA), NADA is urging Congress to increase the amount of funds that the government will guarantee.
“With dealers holding on average $5 million in inventory at any one time, the $2 million loan limit for SBA-guaranteed loans simply isn’t enough,” Koblenz added. “Only Congress can increase these limits.”
Koblenz said that SBA’s Dealer Floor Plan Financing Program — pushed for by NADA and created by the Obama administration — is the right idea, but banks haven’t warmed to it. Unfortunately for many dealers, even as access to credit improves, the temporary pilot program is slated to end Sept. 30.
“Extending the SBA program, increasing the loan guarantee limits, making other program adjustments and continuing the TALF program specifically for floorplan securitizations should give lenders the comfort to offer floorplan lines of credit,” Koblenz said.
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