To help alleviate the problem, the Small Business Administration instituted a new Dealer Floor Plan financing program, a subsidy that will guarantee up to 90% of loans made by small auto dealers for working capital. Some 50% of minority dealers are now eligible for the subsidy, says Staten.
Even with the program, banks refuse to lend to dealers without 100% collateral, says Staten. “The banks are not willing to lend to them because they feel they are toxic assets,â€ she says.
Although NAMAD has asked congress to encourage TARP-sponsored banks to work with dealers, that too might be a dead end.
“Those [dealers] that remain will face a long period of slow sales, significantly smaller profit margins, and uncertain revenue forecasts,â€ according to a statement issued Wednesday by Rep. Nydia M. VelÃ¡zquez (D-NY), the chairwoman of the house committee on small business. She questions why the SBA would implement a program that could result in a significantly higher risk of loan defaults.
Lester hopes that the new fleet modernization bill, which offers consumers incentives to purchase fuel efficient vehicles, will help stimulate car sells. But Lester is quick to remind that a dealer can’t sell cars without floor plan loans.
“Long term [the reduction of franchises] may help the [remaining] dealers,â€ says Lester. “In order to survive this storm we need an infusion of working capital.â€