When GM and Chrysler go under...

Discussion in 'Economics' started by turkeyneck, Apr 21, 2009.

  1. The repercussions from GM and Chrysler franchise cancellations could spread swiftly to other carmakers. According to the NADA, there were 19,790 new-car dealerships in the U.S. as of March 1, fewer than 3,000 representing a single brand. Since most dealers own multiple franchises, their borrowings often cover multiple brands and properties.

    If vehicles in a Chrysler showroom were seized and sold at auction, for example, the proceeds might not cover the dealer’s loan. A lender could thus demand repayment on related loans covering the dealer’s non-Chrysler brands.

    “We’re warning Toyota dealers to watch out, to segregate their finances as much as possible” from those of their GM and Chrysler businesses, said Jerry Pyle, chief executive officer of Gulf States Automotive Group in Houston, Texas, a Toyota Motor Corp. wholesale distributor.

    A reason for keeping inventories tight is that panic- selling of unsold vehicles after a GM or Chrysler bankruptcy almost certainly would drive down prices and the value of all dealers’ vehicle inventories.

    “If the banks dump their collateral on the market, that would be a disaster,” said David Fischer, a multi-line dealer based in Troy, Michigan.