Chrysler Financial hikes dealer floorplan fees

DETROIT — A month after its sudden withdrawal from the leasing business, Chrysler Financial has told dealers that it will jack up their floorplan interest rates and force them to pay off older, unsold vehicles.

In an Aug. 27 letter to dealers, Chrysler Financial CEO Thomas Gilman called the moves "unprecedented actions for unprecedented times." Gilman told dealers that the new charges are a result of "a significant increase in cost" that Chrysler Financial incurred when it renewed its package of loans on Wall Street on Aug. 1.

Under their previous floorplan agreement with Chrysler Financial, dealers paid interest on unsold vehicles. But the lender did not charge fees for aged inventory. While Chrysler Financial wanted dealers to pay off inventory more than a year old, the policy was not enforced. Now it will be.

Dealers aren't happy about the charges. Chrysler Financial will meet with dealers individually to outline its rate increases.

The latest moves heighten tensions between dealers and Chrysler's captive finance arm at a time when the carmaker's sales have been shaky. In August, Chrysler LLC's sales fell 34.5 percent, the steepest decline of any major manufacturer.

New terms
Chrysler Financial's new floorplan rules
Effective Oct. 1
• Wholesale financing rates for dealers will go up. (Chrysler Financial won’t disclose details.)
Effective Jan. 1
• Dealers will be required to pay monthly fees on new-car inventory 180 days old and older. The fees start at $10 per unit, go to $15 at 270 days and $25 at 360 days.
• 2008 and older units more than 360 days old must be paid off at 10 percent a month.
• All used cars more than 180 days old must be paid off.
Chrysler Financial incentives (expire Sept. 30)
• $500 per unit for vehicles 181 to 270 days old; $1,000 per unit for vehicles more than 270 days old
Source: Chrysler Financial letter to dealers

Wall Street's crackdown

Chrysler Financial was forced to raise floorplan fees after it asked banks and investors to renew its $30 billion line of credit on Aug. 1. Some lenders balked, and Chrysler Financial secured only $24 billion.

The lenders required Chrysler Financial to exit leasing. They also required Chrysler Financial to set higher fees for "aged inventory," according to Gilman's letter to dealers.

Tighter financial restrictions on their wholesale loans make it more costly for dealers who floorplan with Chrysler Financial to order new cars. Roughly 40 percent of Chrysler LLC's dealers get floorplan loans from Chrysler Financial.

Under the new rules, Chrysler Financial will raise floorplan interest rates Oct. 1. Dealers will get a grace period — until Jan. 1 — to sell off older units. After that, dealers will pay monthly fees for units 180 days old and older. In addition, they will have to pay off year-old vehicles at a rate of 10 percent of principal every month.

So a year-old vehicle invoiced at $30,000 would cost a dealer $3,000 a month, plus the $25 fee until the vehicle is sold.

The fees will "kill dealers' cash flow," said George Benson, owner of Chrysler-Dodge-Jeep of White Oak in White Oak, Pa., a suburb of Pittsburgh.

Chuck Eddy, the Chrysler dealer council representative to the National Automobile Dealers Association, cited the example of heavy-duty pickups. Those tend to sit on dealer lots for longer periods. Dealers holding those pickups could feel some real "heartburn," he said.

"You take 10 of those, and it's a $300,000 to $400,000 payoff," said Eddy, who owns Bob & Chuck Eddy Chrysler-Dodge-Jeep in Austintown, Ohio.

Eddy said Chrysler Financial is "doing a good job trying to manage through this, but they need to be very, very careful." If dealers get too worried about controlling their inventories, he said, they will stop ordering cars altogether.

Chrysler's dealer council worked to persuade Chrysler Financial to wait until Jan. 1 before enacting the aging inventory fees, Eddy said. "By the time we hit January 1, a lot of the problem is going to be in our rearview mirror," he predicted.

Factory, finance at odds

Chrysler Financial's new policy is similar to that of many banks, which require dealers to make payments on inventories older than 180 days, said Clifford Holmyard of the Rehmann Group, an accounting firm in suburban Detroit.

Some dealers say the new rules show that Chrysler Financial and Chrysler LLC are functioning at cross-purposes. Both are owned by Cerberus Capital Management LP, but each has its own management and operates independently.

While Chrysler LLC's automotive sales staff is pleading with dealers to buy more cars, Chrysler Financial is penalizing dealers for holding too much inventory.

Kevin Wittrock, general manager of Wittrock Motor Co. in Carroll, Iowa, said Chrysler representatives tried to describe its fees on aging inventory as an incentive for him to move cars. "I said: 'This is not an incentive. It's a penalty.' It's going to directly affect what I buy. ... I am not going to stock slower-moving vehicles."

Jim Appleton, director of the New Jersey Coalition of Automotive Retailers, said the finance company that Chrysler dealers once counted as a partner is turning the screws on them.

"You try to maintain a 'loyal soldier' relationship ... by buying all the product you can reasonably expect to move," Appleton said.

Now, he said, those loyal dealers are getting punished. One such dealer is Dick Greenfield, owner of Dick Greenfield Dodge in Lawrenceville, N.J. Greenfield has been floorplanning with Chrysler Financial since 1972, but last week the veteran dealer started shopping for another bank to finance his inventory.

"I told them, 'I don't know why you're hassling me and raising my rate when we've hung with you since 1972 through good times and bad,' " Greenfield said. "But it looks like they don't care." 

Nancy Kaffer of Crain's Detroit Business contributed to this report

You can reach Bradford Wernle at bwernle@autonews.com

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