General Motors Acceptance Corp. last week tried to assure the National Automobile Dealers Association it will be fair to dealers who finance their new-vehicle inventory through competing lenders.
At a special meeting in Reno, Nev., top GMAC executives met with NADA leaders to air complaints about a program that rewards dealers who have floorplan accounts with the captive finance company.
'It was a positive meeting,' said Jim Willingham, NADA chairman and owner of Boulevard Buick-Pontiac-GMC in Long Beach, Calif. 'We were able to squash the myths and rumors about the program. There were a lot of rumors.'
Most dealers like the program. At least 70 percent of GM dealers have floorplan accounts with GMAC. But the other 30 percent who aren't reaping the rewards are suspicious that the benefits go too far.
BETTER RATES, DEEPER DIVE
Dealers who finance their vehicle inventory through GMAC get better buy rates on finance contracts plus discounted or waived service fees and special cash incentives of up to $500 per new vehicle. On average, these dealers are getting a half-point better buy rate on GMAC retail loan contracts than dealers who finance inventory through competing lenders. GMAC also buys much deeper on retail contracts, even creating a separate 'E' subprime category for its top dealers.
Dealers can use the lower buy rates to make their retail rates more competitive or to fatten their profit margins. Dealers set retail loan rates, not GMAC.
The GMAC program was intended to parallel what some banks do for their favored customers. And some dealers get such competitive floorplan rates through competing lenders that the low rates more than offset the benefits GMAC offers its floorplan dealers. But the program has still roused suspicion and bad feelings among nonparticipating dealers.
'Four months ago some dealers (in Virginia) advertised low lease payments on the Chevrolet Tahoe (using special rates GMAC gave floorplan dealers),' said Frank Pohanka, owner of Pohanka Nissan-Cadillac-Oldsmobile in Fredericksburg, Va., and chairman of the Virginia Automobile Dealers Association. 'None of us could get there.'
David Borchelt, GMAC's vice president of southeast operations, said the special rates funded through the GM divisions are available to all GM dealers. The Tahoe lease was not a GM-funded promotion. Although GMAC did discount the lease rate on the Tahoe for its floorplan dealers, the finance company had no involvement in the advertisements. GMAC would offer a joint promotion only if almost all its dealers signed up for the program nationally, said Borchelt.
The loyalty rewards upset some dealers so much they complained to NADA.
That prompted last week's sit-down in Reno, which was attended by Willingham plus Phil Brady, NADA's chief of industry relations, and members of NADA's executive committee. Representing GMAC were Executive Vice President John Gibson, Borchelt and two other regional vice presidents.
At the meeting, the GMAC executives also assured NADA that the company would not steer business to favored dealers through toll-free numbers and the Internet, nor advertise favored rates for select dealers.
PLATINUM, GOLD OR SILVER
The program separates dealers into three categories - platinum, gold or silver - based on how much business they send GMAC.
The criteria could vary by region, but generally:
Platinum dealers floorplan their vehicle inventory through GMAC and send GMAC 30 percent or more of their retail paper
Gold dealers floorplan through the captive, but send it less than 30 percent of their retail contracts
Silver dealers do not floorplan their inventory through GMAC.
GMAC says the program has increased its floorplan business substantially. In the southeast region, for example, where the program was launched in March 1998, GMAC provides wholesale financing for 77 percent of the GM dealers. The program was rolled out nationally beginning in January.
'The vast majority of our dealers like the program,' said Borchelt. He said the program was developed at the request of the Chevrolet dealer council, noting that banks and insurance companies offer discounts to loyal customers.
Some 78 percent of the captive finance companies and 30 percent of large banks have some form of incentive rewarding dealers who send them more finance business, according to the 1999 Consumer Bankers Association Auto Finance Study.
The incentives, at least in GM's case, are mutually rewarding. 'I love the program,' said Eugene Meyers, president of Paramus Auto Mall in Paramus, N.J., whose finance business is up 15 percent since the program started in March. 'It's the best thing since apple pie.'