GMAC Cutting Off Lending To Chrysler Dealers

Story from the Wall Street Journal

GMAC LLC is suspending wholesale financing for certain Chrysler Group LLC dealers it considers to be too risky to lend to, GMAC and Chrysler confirmed Wednesday.

The move could ultimately push more Chrysler dealers out of business and hurt the company's ability to sell vehicles. During its bankruptcy restructuring, Chrysler shed 789 dealers.

GMAC, formerly the captive lending arm of General Motors Corp., recently took over financing of Chrysler dealers' inventory after Chrysler's own lending arm stopped doing so.

About 60% of the roughly 2,400 dealers who survived Chrysler's bankruptcy applied for interim wholesale financing with GMAC, according to Chrysler. So far about 6% -- more than 80 -- have been informed that their wholesale financing has been temporarily suspended, the company said.

GMAC declined to say how many of the dealers so far have been vetted to continue to receiving loans, and refused to confirm the number of dealers it has suspended. The company said it will need about six months to complete the vetting process.

GMAC said the process was part of normal due diligence. GMAC's goal in part is to avoid doing business with dealers who are too big a financial risk, Mike Stoller, a company spokesman said.

The lender earlier provided interim financing to all Chrysler dealers who applied for it. It received billions in government aid to do so, including $7.5 billion in late May.

But surviving Chrysler dealers always were set to be vetted later, said Mr. Stoller. "The next step was always to go back and look at each of the dealerships individually," he said. Mr. Stoller said GMAC wasn't working with Chrysler on this effort and that it had "no particular goal in mind" for the number of dealers to continue to receive loans.

According to GMAC, suspended dealers typically have 30 days to improve their balance sheets or they must find another company to provide them wholesale lending.

But few Chrysler dealers GMAC rejects are likely to gain the additional capital to get back on board, or find another lender, such as a large bank, willing to take on their loan needs, given the current lending market.

"This definitely puts them [Chrysler] at a disadvantage," said Mark Rikess, founder of Rikess Group, a California-based dealer consulting firm. "They've got a very weakened distribution channel right now."

The car maker still has too many dealers, he said, but for the moment it needs those it has to survive and buy its vehicles.

Chrysler and GM both rely on GMAC for much of their retail-customer and wholesale financing. Chrysler Financial has been forced to wind down its lending due to a lack of capital.

This leaves Chrysler as the only major U.S. auto maker without a finance firm with which to work closely.

Chrysler expects to have most of its surviving plants running again by July, and will need dealers to buy cars so the company can begin generating revenue.