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By Nick Carey and Soyoung Kim
DETROIT (Reuters) - The heads of two U.S. auto dealership associations said on Tuesday that swift government action is needed to improve access to floorplan financing — which funds inventory purchases — for their members or more dealers will go bankrupt.
“If we don’t fix this wholesale credit issue, this whole thing (the auto industry) collapses,” John McEleney, chairman of the National Auto Dealers Association, told Reuters in a telephone interview. “Every week there are more dealers that are being impacted and going out of business.”
U.S. car dealers have to pay for a new car on delivery, a process traditionally funded through floorplan financing. But such financing has dried up in recent months with the credit crunch.
McEleney said the NADA had hoped the Federal Reserve’s Term Asset-backed Loan Facility — which will provide $200 billion to finance new debt backed by auto, credit card, student and small business loans — would help floorplan financing. But rating agency downgrades for auto finance companies like GMAC LLC (GKM.N) have cut off access to TALF funds.
“The floorplan financing problem affects everyone,” McEleney said. “When we lose that, there’s nowhere else to go.”
The NADA represents 20,000 U.S. car and truck dealers nationwide. Thanks to a protracted slump in the U.S. auto industry — industrywide sales fell nearly 40 percent in the first two months of the year to their lowest level in 27 years — the NADA expects 1,200 dealerships will go out of business in 2009, up from 900 in 2008.
“If we don’t get the financing issue resolved by the second half of the year that number could be higher than 1,200,” McEleney said.
Just in January, the NADA was projecting that 900 dealerships would close this year.
‘NO SOLUTION YET’
Earlier this month the heads of the NADA, the American International Auto Dealers Association and the National Association of Minority Auto Dealers called on U.S. President Barack Obama to improve funding for floorplan financing.
Auto dealers have shed some 50,000 jobs over the past 12 to 14 months and are “collectively at risk for approximately $100 billion in inventory financing,” the letter said.
“We must have floorplan financing to finance inventory,” AIADA Chairman Russ Darrow told Reuters. “This isn’t about domestic automakers or imports.”
“This is a huge problem spread out across little and large communities across the country,” he added.
The AIADA represents 11,000 dealerships for foreign-based brands such Toyota Motor Corp (7203.T) and Volkswagen AG (VOWG.DE).
The NADA’s McEleney said the three groups have met with officials from the U.S. Treasury, Federal Reserve and U.S. government autos task force, and are to meet Federal Reserve Bank of New York officials this week to press their case.
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