SBA Looking At Providing Loan Guarantees To US Auto Dealers
May 15 2009 - 2:32PM
Dow Jones News
The Obama administration is considering providing loan
guarantees to auto dealers, many of whom have been pushed to the
brink by the troubles of General Motors Corp. (GM) and Chrysler
LLC.
The U.S. Small Business Administration is in serious discussions
with the Treasury Department's auto task force about extending loan
guarantees to dealers so they can purchase vehicles to stock their
showrooms, Jonathan Swain, the SBA's assistant administrator, said
Friday. Details, including the timing and potential size of the
guarantees, haven't been worked out.
Auto dealers are eligible for SBA loan guarantees for certain
purposes, but not for so-called floorplan financing, Swain said.
Expanding SBA guarantees to cover floorplan financing has been done
once - under a directive by President Jimmy Carter during a similar
crisis facing auto dealers in 1980 - Swain said.
"Our regulations have never permitted us to do it, except for
the rare exception when the president elected to do it in 1980,"
Swain said.
Dealers have found it increasingly difficult to obtain loans
amid the broader credit squeeze and the plunge in auto sales. The
bankruptcy filing of Chrysler LLC and the likelihood of a filing by
GM has tightened the squeeze amid fears that the values of those
companies' vehicles will plummet, thereby making it harder for
dealers to pay back the loans.
The National Automobile Dealers Association has met with
President Barack Obama's auto task force on the issue. The
association has urged the implementation of guarantees that would
help prevent dealer failures that could result from so-called
clawback provisions, which allow finance companies to demand at
least partial payment of dealer inventory loans in the event of an
auto-maker bankruptcy.
NADA officials weren't immediately available for comment
Friday.
The prospect of government aid follows announcements by GM and
Chrysler this week that they planned to radically cut their dealer
networks as part of their restructuring.
-By Josh Mitchell, Dow Jones Newswires; 202-862-6637;
joshua.mitchell@dowjones.com