Oct 27th, 2009 by Liz Opsitnik
About 789 Chrysler, Jeep and Dodge dealerships closed in June as part of Chrysler’s Chapter 11 bankruptcy filing. Now, about 40 more could close due to a conflict between Chrysler Financial and GMAC, the Detroit Free Press reports.
According to the National Automobile Dealers Association, these dealerships, which are considered viable, could lose their floor plan financing and go into foreclosure. Floor plan financing allows dealers to purchase vehicle inventory from the manufacturer through a loan, then pay for the vehicle once it’s sold.
More Chrysler, Dodge and Jeep dealerships are at risk of closing if they can’t get their floor plan financing worked out with GMAC.
When Chrysler filed bankruptcy, the U.S. Treasury agreed to guarantee floor plan loans until Nov. 15, while GMAC took over the wholesale financing operations previously provided by Chrysler Financial.
GMAC President Bill Muir said owners of 41 Chrysler dealers were asked for more collateral. The value of the vehicles being ordered for inventory is reportedly not enough collateral. For some dealers, the only way to raise the additional collateral is to draw on their dealership mortgages.
“These dealers have large loans from Chrysler Financial that GMAC cannot refinance due to its lending guidelines and regulatory policies,” said Muir.
The problem is that Chrysler Financial holds the mortgages on some of these dealerships and has refused to relinquish its stake in those properties. Even if dealers chose to sell their stores, they would get considerably less than they owe on the mortgages.
“The parties have taken inconsistent positions and dealers are stuck in the middle,” said Forrest McConnell, an official with NADA.
GMAC could foreclose on these dealers’ inventory if the issue hasn’t been resolved by the Nov. 15 deadline. Chrysler Spokeswoman Kathy Graham said the automaker is not concerned that dealers “critical to our network” are in danger. Chrysler is encouraging some dealers to consolidate Chrysler, Dodge and Jeep brands in one location.
Not only would closing 41 more Chrysler dealerships add to the nation’s unemployment rate, but it also would affect car shoppers. If the nearby Chrysler, Dodge or Jeep dealership closes, consumers would have to drive farther to find a dealership in their area.
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