Tuesday, March 17, 2009

Car Companies Calling in Loans

I thought they were supposed to be loaning money OUT!

"Auto lenders have seized on clauses in their inventory loans.... to
demand accelerated repayment for cars, trucks, or vans that are sitting unsold.... If, for example, a dealer borrowed $30,000 to buy a vehicle and it hasn't sold in 365 days, the lender wants a 10 percent payment - or $3,000 - right away"

"Auto dealer drives his point home; $6m renovation anticipates economy's turnaround" by Robert Weisman, Globe Staff | March 17, 2009

PORTSMOUTH, N.H. - Jim Boyle.... has sunk $6 million in borrowed money into this massive renovation project at a former vocational school along Route 1. He's about six weeks away from opening in the midst of the worst economic downturn since the Great Depression. The pressure is on....

This is the toughest of times for car dealers, the largest and most visible part of New England's shrinking automotive sector. Dozens of dealerships in the region have shut their doors since the recession took hold, and many survivors are hanging by a thread as General Motors and Chrysler pare their dealer networks.

Related: GM Bailout Will Cost Taxpayers $90 BILLION

How come none of that is saving your business or job, Americans?

Boyle, 50, said he's one of the lucky ones. Toyota, while feeling the strain, has been outselling rival brands, and his Toyota of Portsmouth dealership has a prime location on New Hampshire's affluent coast. Boyle's other dealership, in Hudson, Mass., sells GMC trucks to commercial customers, a tougher market, but because owners are keeping their trucks longer, his service business has been strong.

Most encouraging, he hasn't yet received a "curtailment notice" for inventory on his lots, a frightening scenario for dealers. Auto lenders have seized on clauses in their inventory loans, known as floor plans, to demand accelerated repayment for cars, trucks, or vans that are sitting unsold, their value depreciating. If, for example, a dealer borrowed $30,000 to buy a vehicle and it hasn't sold in 365 days, the lender wants a 10 percent payment - or $3,000 - right away....

Almost every dealer has been affected by the lending squeeze, according to the trade group that represents Massachusetts auto dealers. Some lenders have required dealers to put up real estate as collateral to extend their credit lines, or they've notified dealers that they are pulling out of auto lending altogether....

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