Minority Dealers May Be Slammed by Closings

Advocates say some could be left holding the bag

Dealers typically use floor plan financing to buy the vehicles from the manufacturer at a discount and then pocket the difference when they sell them. This year, auto sales have been historically low. Chrysler would not buy back or help sell the excess inventory after the bankruptcy, but helped dealers redistribute parts and inventory to surviving dealers. Still, some dealers will be liable for the vehicles and loans they can’t trade or sell. Dealers are afraid that GM management might change their mind and do the same.

John D. Rockefeller IV (D-WV), chairman of the U.S. Committee on Commerce, Science, and Transportation said Wednesday at a hearing that dealers had a right to be concerned about whether GM would honor its commitment.  The government will be making a $30 billion investment in GM and has committed $15.5 billion to Chrysler.

“I don’t believe that companies should be allowed to take taxpayer funds for a bailout and then leave local dealers and their customers to fend for themselves with no real notice and no real help,” said Rockefeller.

Lester wants Congress to step in and force the manufacturers to relieve the dealers from all personal guarantees for term loans and floor plan loans so that the dealers can keep their personal assets. Lester also argues that terminated dealers should be able to keep the proceeds from their parts and receive fair and reasonable compensation for property.

“Although a manufacturer can file for bankruptcy, restructure, and create a new company, that is not an option for a dealer. Dealers are caught holding everything,” Lester said, in an interview with BlackEnterprise.com.

The ‘New GM’

The number of units sold per dealer will nearly double, once they close the other dealerships, according to Fritz Henderson, GM CEO, at the Senate Commerce hearing Wednesday. But just because their contracts were renewed doesn’t mean that the remaining dealers have an easy road ahead of them. The surviving dealers will continue to operate in an environment that is capital poor.

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