The words “General Motors Financial Co. Inc.” ought to be music to the ears of beleaguered GM dealers. When GM completed the acquisition of AmeriCredit Corp. last week and changed its name, the automaker took another step on the road back to having a full-service captive finance company.
For the time being, GM says it will maintain a relationship with Ally Financial, formerly known as GMAC Financial Services and, before that, General Motors Acceptance Corp. As of June 30, Ally provided wholesale financing for about 84 percent of GM’s dealers in the United States and 75 percent of Chrysler Group’s dealers.
But there is no guarantee that the relationship with Ally -- owned 56 percent by the U.S. Treasury -- provides a reliable long-term source of retail financing and inventory floorplanning.
Besides prompting GM and Chrysler to eliminate thousands of dealerships in the run-up to bankruptcy, one of the most confounding things the Obama administration’s auto task force did was to expect GM and Chrysler to emerge from Chapter 11 and be successful without captive finance companies.
Wall Streeters and other outsiders often miss the subtle difference between independent banks and captive finance companies, which is like the old saw about the ham-and-eggs breakfast in which the chicken is involved but the pig is committed.
In retail and wholesale automotive financing, banks are involved but captives are committed.
When times get tough -- as they did, for example, during the dark days of the Carter administration, when the prime interest rate peaked at 21.5 percent -- banks can and do pull out of automotive lending, but captives must stand firm and be the lender of last resort for their automakers’ dealerships.
After President Barack Obama signed the $42 billion small-business bill last week, there was hope in some quarters that raising the limits on floorplan financing backed by the Small Business Administration would make more banks willing to finance dealership inventory. But despite the best intentions of Congress and the administration, the initial reaction by independent lenders was a wait-and-see attitude. Banks were not convinced that floorplanning is an appealing business.
As the market improves, banks will regain their appetite for retail and wholesale automotive financing. They always do. But dealerships must have dependable financing sources for good times and bad.