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Future funding?

Credit crunch: Half of all GMAC-funded dealers are yet to refinance.

GMAC could be the vehicle for bank funding of car dealer stock

25 Nov 2008

SOURCES in the automotive finance industry are suggesting that two of Australia’s four banks would be well placed to enter the funding of dealership stock and retail auto finance on the back of the existing GMAC operations.

The rush to find alternative funding for dealers cut adrift by the departing US finance groups, GE Money and GMAC, has diverted the industry’s attention from the big opportunity awaiting one of Australia’s banks to virtually overnight get a massive share of what promises to become an extremely profitable funding business.

The sources say that NAB or CBA would be well placed to take over the infrastructure, systems and people at GMAC before they are wound down over the coming months and to use GMAC’s core competence as a springboard into dealer stock funding.

Of the other two banks, ANZ is already in auto finance through Esanda and Westpac is re-entering auto finance through its purchase of St George.

The key here is the extremely attractive infrastructure asset that resides within GMAC.

GoAuto understands that GMAC’s systems and people were so highly regarded that GE Money was in the final phases of buying the company just six weeks before the US ordered GE out of Australian dealer finance.

Industry sources say that GMAC’s Australian systems and highly trained people are superior to GE Money’s and that was the reason GE wanted the company.

Insiders are saying that the newcomer could write very profitable loans because it would be starting with a clean sheet of paper with dealers who are desperate for money just to keep cars in stock into the New Year.

It was suggested that dealers would be expected to pay the cost of money plus two per cent for funding their stock.

In addition, the bank would be protected from high risk of dealer failure by the planned Rudd government guarantee which is expected to be announced within days.

The government scheme is designed to give certainty to finance companies who are shying away from any dealers with soft operating results or dealers who are heading that way.

The government wants to avoid massive closures of car dealerships throughout the nation because of the widespread effect such closures would have on so many communities.

There are suggestions that some car distributors might also be struggling to find funding to cover the sudden build-up of stocks of the cars they are importing with some iconic brands involved.

Referring to the opportunity for NAB and CBA, one industry insider said: “The Rudd government is guaranteeing $2 billion in funds for them. I would have thought that is a bloody good start for anyone wanting to get into this business.

“This is a huge opportunity to make conquest sales without the cost associated with taking business off existing players.

“The exiting players are handing the banks the business at no cost and they don’t have to use stupid tactics to win the business because the dealers will be happy to be taken on under the circumstances when the dealer gets a reasonable income and so does the financier.

“The dealers are nervous as hell and very anxious and any bank coming in would be likely to charge dealers their cost of funds plus two per cent.

“All the old sweetheart deals between floor plan coverage and retail finance sales are going to be off the table because all these dealers are keen to get debt funding that will keep them in business into next year.

“The interest would no longer be scaled into the retail finance being sold by the dealer because there is no need to. Everyone needs the funds and will be relieved to get them.

“So for any bank coming in this could be a much cleaner, smoother, more profitable business from day one. It is a unique opportunity.” GMAC employs 150 people who were servicing about 240 dealers.

GoAuto understands only three dealers have stopped using GMAC since the announcement. About 20 per cent have organised finance for next year and another 30 per cent are waiting for approval from an alternative finance company.

Half still have nowhere to go.

Read more:

Capital concern

Car finance under scrutiny

Car dealer credit crisis continues

Ford Credit 'still writing paper'

Credit crunch hits dealers

The Road to Recovery podcast series

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