GMAC’s plight worries some dealers

By Don Shilling

Most General Motors dealers are just like you — they don’t own the cars they have. They finance them.

But as their lender, GMAC Financial Services, teeters on the brink of bankruptcy, some dealers are concerned that their financing could be pulled out from under them.

Boardman car dealer Dave Sweeney said he already has had preliminary talks with banks about providing financing for his $17 million inventory should GMAC collapse.

“I think we’ll be OK,” said Sweeney, who owns Sweeney Buick-Pontiac-GMC and Sweeney Chevrolet with his brother, Doug. “We’re well-capitalized. I think we’ll be able to find a home” for the dealership’s financing.

A Georgia dealer told Automotive News, a trade publication, that he thinks as many as half of GM’s 6,450 dealerships could be forced to close if they couldn’t rely on GMAC to finance the cars on their lots. They wouldn’t be able to obtain financing in today’s tight credit market, he said.

Sweeney agreed that some dealers wouldn’t be able to stay open without GMAC.

GM needs a dealership network so it is willing to take some credit risks with dealers that other lenders would not, he said. GM used to own all of GMAC but sold 51 percent of its stake to Cerberus Capital Management in 2006.

Greg Greenwood, who owns Greenwood Chevrolet and Hummer in Austintown and Greenwood’s Hubbard Chevrolet, said he thinks he would be able to find a lender for his inventory if need be.

Automotive News said an unscientific survey two months ago found that about 80 percent of GM dealers relied on GMAC for money needed to put cars on their lots.

Greenwood and Sweeney added, however, that a bank would want to be assured of GM’s stability before it would agree to take over a car dealer’s financing. That means GM’s financial crisis also must be solved.

GM has said it is close to not having enough cash to fund its daily operations. Congress last week declined to provide loans to the Detroit automakers, but President George W. Bush said Monday that his administration is working on a funding plan.

GMAC has been struggling with losses on auto loans and from a residential lending arm that was involved in subprime lending.

To alleviate the financial pressure, the majority owner of GMAC wants to convert the lender to a banking holding company so it could qualify for funds from the $700 billion federal rescue plan for the financial services industry.

A Standard & Poors analyst said last week that the potential of a bankruptcy is high unless GMAC is able to make this conversion, Automotive News reported.

To meet federal capital requirements for banking holding companies, GMAC must exchange $38 billion in existing bonds for new debt.

GMAC had set a deadline of last Friday for completing the swap, but Reuters news service said that deadline was extended until Dec. 26. The news service said GMAC offered new terms with higher dividends Friday and received commitments from holders of a substantial amount of bonds, but “significant additional participation” was still needed.

shilling@vindy.com