Dealer Group Applauds Stimulus Pledge; Expresses Concern Over Financing, Bankruptcy

The National Automobile Dealers Assn. is applauding President Obama’s promise to support measures to stimulate new car and truck sales in the U.S., but the group again raises concerns not enough is being done to free up credit and warns against bankruptcy as an option for General Motors Corp. and Chrysler LLC.

Obama says today the U.S. government will back new-vehicle warranties and his administration will put some muscle behind a scrappage bill now circulating in Congress that would encourage consumers to trade in clunkers for new models as part of the effort to rescue GM and Chrysler.

But he also raises the specter of bankruptcy once again, saying it could turn out to be the most efficient way to reorganize one or both of the auto makers into strong global competitors with long-term viability.

“Bankruptcy, under any circumstances, should not be an option,” NADA Chairman John McEleney says in a statement. “It would further erode consumer confidence and, therefore, our ability to sell at the retail level. Moreover, it would further exacerbate the availability of credit.”

Obama is promising his office will continue to work with automotive finance companies to increase the flow of credit to both consumers and car and truck dealers in an effort to stimulate the market, but the dealer group remains concerned.

“If something is not done in the immediate future to restore the auto dealer’s access to both wholesale vehicle inventory (or floorplan) financing and retail consumer credit, the restructuring plan will not work,” McEleney says. “Vehicle-inventory financing is the building block to auto maker viability. It affects the entire auto retail network, domestic and international.

NADA Chairman, John McEleney.

“It is essential not only to a healthy automotive industry, but to the overall economic recovery.”

Under the warranty program announced today, the government will create a separate account using cash from Chrysler and GM and a loan by the U.S. government to pay for repairs.

The account will be funded at 125% of the cost each company projects it will need to cover warranties during its restructuring period.

If either auto maker fails, the government will use the funds to contract with an independent service provider to administer the warranty program and make repairs.

“Your warranty will be safe,” Obama says. “In fact, it will be safer than it’s ever been, because today the United States government will stand behind your warranty.”

In laying out his automotive strategy, Obama signals he will back the concept behind a House of Representatives bill that would provide consumers with vouchers worth $3,000 to $5,000 for trading in a car at least 8-years old. If passed, the law that would be retroactive to vehicles purchased as of today, he says.

Similar programs are being credited with helping to boost sales in some European markets, including Germany.

The House bill requires consumers to purchase a vehicle costing less than $35,000 with a minimum highway fuel-economy rating of 27 mpg (8.7 L 100/km) to qualify for the vouchers. The payout would increase to $7,500 for a plug-in hybrid vehicle purchased between 2011 and 2016, and the bill restricts eligible vehicles to those built in North America, with U.S.-produced models qualifying for bigger payouts than those made in Canada or Mexico.

“We are especially heartened by the president’s comment that he ‘will not let our auto industry vanish,’” McEleney says. “We also applaud his decision to support further measures to stimulate demand, including a new fleet-modernization program. These are important first steps toward stabilization of the auto industry as a whole.”

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