Dealers trapped in GMAC, Chrysler Financial Catch-22

Chrysler dealers who survived the purge earlier this year now face a new challenge: getting financing in the midst of a dispute between GMAC and Chrysler Financial. Hundreds of dealerships that Chrysler Group says are critical to its success could go out of business because they can’t get floorplan funding from GMAC until they have settled any accounts with Chrysler Financial.

The problem is which company would have first claim on the dealer’s assets in case of a default. GMAC insists it have the first claim before it will approve financing but the economic downturn has left many dealers without the assets to pay off their existing mortgage and floorplan loans from Chrysler Financial which insists it has the first claim.

One problem is that some pledged assets are not worth what they were when the original loans were taken out. Property values have declined to the point that some dealers owe millions more than their real estate would bring in a sale. In addition, the slowdown in vehicle sales has cut dealer incomes almost across the board.

GMAC became the lender of choice for Chrysler dealers when the federal government intervened last April. GMAC was able to get funding because it was granted bank holding status. Chrysler Financial had applied for similar status but withdrew its application because Cerberus Capital Management refused to comply with federal disclosure regulations for companies with significant ownership. Some industry watchers say Chrysler Financial is being wound down to liquidation or is trying to wrap up all its Chrysler dealer financing by year’s end, though the company denies this.

Dealer caught in the middle have only until mid-November to get financing approved by GMAC and Chrysler Group officials say progress is being made in discussions with the two finance companies. However, dealers who do not have floorplan financing in place by the deadline will no longer be able to order new vehicles for inventory.

GMAC says about half the 1,500 applications for new financing have already been approved and says it has brought in extra manpower to ensure the majority of applications receive action by the November deadline.