Financing on the Brain

Tuesday, 17 March 2009 10:14

Small Business Aid Must Include Struggling Dealers

As many of you know, the Russ Darrow Group is headquartered in Menomonee Falls, Wisconsin. It's a great town, near and dear to my heart - but living here means long winters. The average temperature in March is a frigid 31 degrees. With warmer weather just around the corner, I, like all my fellow Wisconsinites, should have spring fever. Instead, like many dealers, I have financing on the brain.

Over the past year, dealers have been kept awake at night by more than just falling sales. Financing is also a major contributor to our worries. Thanks in part to inaccessible financing, approximately 1000 dealerships have closed this year and 50,000 jobs have been lost. How is it that has financing become such a crucial issue?

Several factors are to blame. When the liquidity crisis hit, the floorplan securitization market froze up just like a lot of other credit markets. And as car sales fell, floorplanning lost its AAA bond rating. Institutional investors stopped buying floorplan securitizations or offered to buy them only at prices at which the floorplan lenders could not afford to sell. This caused many floorplan lenders to run out of the cash they needed both to extend new floorplan financings and to roll over existing floorplan financings. Even creditworthy dealers cannot find alternative financing when cutoff by their current lenders.

On March 2nd, I, along with Desmond Roberts of NAMAD and John McEleney of NADA sent a letter to President Obama asking him to institute two specific policy initiatives that would save dealerships from collapse and prevent further lay-offs. First, we requested that the administration's auto task force revitalize the asset-backed securities (ABS) market for wholesale and retail auto loans. The Treasury Department and the Federal Reserve created the Term Asset-backed securities Loan Facility (TALF) to address this issue for some small businesses, but its current eligibility criteria excludes many key dealer floorplan and auto retail securitizations. That needs to change, the sooner the better.

In addition, we asked that the Small Business Administration (SBA) loan guaranty program be expanded to provide floorplanning and working capital for auto dealers. Currently, these section 7(a) loans cannot be used for auto floorplanning and the SBA size standard effectively excludes most auto dealers from applying. President Obama should work to change these rules just as President Carter did in 1980, expanding eligibility on an emergency basis to provide liquidity for the nation's struggling auto dealers.

On Thursday, New Mexico Kia dealer and AIADA member Bob Cockerham will deliver this message at a Senate Small Business Committee hearing in Washington ("Perspectives from Main Street on Small Business Lending"). Let's wish him well. Time is of the essence in implementing these changes. The days are flying by and pretty soon it will be springtime, even in Menomonee Falls, Wisconsin. As dealers, we will rally together to push these changes through before then.

As a reminder, AIADA's 3rd Annual International Auto Summit is a perfect opportunity for dealers to come to Washington and be heard on these and other critical issues. Dealers will have an opportunity to meet with fellow dealers from around the country and hear from political insiders and auto executives. Most importantly, AIADA will arrange to have dealers meet with their legislators on Capitol Hill. Don't miss out.

Russ Darrow, AIADA Chairman