U.S. Auto Dealers Floored by Floorplans

Washington DC October 6, 2008; The AIADA newsletter reported that the credit crisis — which has made lenders reluctant to finance dealerships' vehicle inventories — is helping force hundreds of dealers out of business. The last decline of this magnitude occurred during the recession of the early 1990s.

According to Automotive News, dealers have fallen prey to poor sales, high gasoline prices, and ruinous price wars. But a lack of credit is a big factor in this year's shakeout.

Major banks such as Bank of America and Wells Fargo also have increased interest rates on dealer inventories, or floorplans.

At the same time, many lenders are demanding more collateral for floorplan loans. Some lenders are refusing to floorplan unprofitable dealerships, to the point of recalling their loans, and sluggish car sales have made a bad problem worse.

Mark Johnson, a dealership consultant in Seattle, says some banks will not floorplan dealerships that sell Detroit 3 or minor import brands. "We tried to get a Kia deal done in Florida," Johnson says. "None of the banks would floorplan the Kia dealer — a good dealer with a lot of money."