US auto and housing financier GMAC is suspending wholesale financing for some Chrysler Group dealers it considers to be too risky to lend to.
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The move could ultimately push some dealers out of business and hurt Chrysler’s ability to sell cars, the Wall Street Journal (WSJ) said.
GMAC’s goal, in part, is to shore up its own financial position by avoiding risks it can not afford, company spokesman Mike Stoller told the paper.
According to the report, two-thirds of the approximately 2,400 dealers who survived Chrysler’s bankruptcy applied for interim wholesale financing with GMAC but 6% – over 80 – so far had been told their wholesale financing was temporarily suspended.
During restructuring, Chrysler shed billions of dollars in debt and 789 dealers. It also needed billions in federal government aid to complete its alliance with Fiat and form Chrysler Group LLC – the ‘new Chrysler’.
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By GlobalDataGMAC refused to confirm to the WSJ the number of dealers it had stopped financing but said the process was part of normal due diligence.
GMAC provided interim financing for all Chrysler dealers who applied for it, partly thanks to a government request, the report added. The lender also had received billions in government aid for that purpose, including US$7.5bn late in May.
Stoller told the Wall Street Journal that surviving Chrysler dealers were always going to be vetted later. “The next step was always to go back and look at each of the dealerships individually,” he said.
Stoller added the company was not working with Chrysler on this and said the company had “no particular goal in mind”.
Chrysler and General Motors both now rely on GMAC for much of their retail and wholesale financing, the WSJ said. Chrysler Financial was forced to wind down its retail lending due to a lack of capital, leaving the company as the only major US automaker without a ‘captive’ finance arm to work closely with.
According to GMAC, suspended dealers typically have 30 days to improve their balance sheets or find another company to provide them wholesale lending. The company will need about six months to complete this process, it said.
Few rejected Chrysler are likely to secure the additional capital to meet GMAC’s criteria – or find another lender willing to meet their loan needs.
“This definitely puts [Chrysler] at a disadvantage,” Mark Rikess, founder of California-based dealer consulting firm Rikess Group, told the WSJ. “They’ve got a very weakened distribution channel right now.”
The company still had too many dealers but right now needed those it had to survive and buy cars, he added.
