Saab Dealerships In United States Find Floor Plan Credit Complicated With Financial Institutions

Posted on 25. Sep, 2009 by Ryan in 2000-2009

Saab History has just learned that a number of small Saab dealerships in the United States, need a total of $150 million dollars of floor plan credit through a bank in order to survive by December 1st. This is due to many regional and national banks choosing to do away with floor plan lines of credit.

The breakdown of this credit boils down to banks that need to provide each dealership a range of $500k to $2 million dollars in credit, a piece. Currently there are just a small fraction of banks providing this floor plan credit and that is dwindling as many exclusives have received phone calls from banks they’ve worked with for years that have given them 90 days to find a new lender, or their credit is cut. Apparently, banks don’t see it worth the work/risk anymore for credit lines offered to niche brand manufacturers like Saab.

What I find ironic is that the Small Business Administration in the United States launched what is called the “Dealer Floor Plan Financing Program” which specifically outlines the financial figures as such. “DFP loans are available for a minimum of $500,000 up to the $2 million allowable under the 7(a) program, with a maximum repayment term of five years.” While this looks to be a great program, it’s only possible with a participatory lender such as a bank or other financial institution. That’s where the current disconnect is at this time.

Once the floor plan credit line is cut from a Saab dealership or any for that matter, the result is that the dealership effectively can no longer purchase any more vehicles unless they have the cash reserves in which to do so. With the sales slump over the past few years, paying cash for new cars is extremely unlikely in the immediate future.

So, the question here becomes the following. Saab Automobile AB’s Director of Sales & Marketing, Knut Simonsson has indicated last week, that Saab exclusives are in the best position for the newly independent company.

However, while this statement may be true, the financial situation of small Saab dealerships are not. This means that if these small Saab dealerships do not receive their floor plan line of credit from a bank basically by December 1st, 2009, they won’t be around any longer as a Saab dealership. The effect of this will be catastrophic for the new Saab Cars North America as they try and relaunch their stateside operations beginning on January 1st, 2010.

Once their floor plan funding is cut, they won’t be able to order new products from the factory at Saab Automobile even if the agreement letter comes in the mail. Adding insult to injury, 30 days later their contract with GM will end as part of the “wind down agreement” between dealerships and GM.

With many banks no longer willing to offer lines of credit for floor plans at a number of small Saab dealerships, there needs to be credit sourced differently. This alternative approach has been suggested where Saab Cars North America should use what clout it has still being part of GM, to get a large financial institution to cover this line of credit to ALL of the small Saab dealerships. If a bank is unwilling to offer between $500k to $2 million dollars of credit to a small dealership, maybe they would be willing to, with economies of scale, offer $150+ million dollars in credit to 75 Saab dealerships throughout the United States.

So, as many small Saab dealerships indicate, it is not what small bank can provide the credit, it is what large financial institution can the new Saab Cars North America provide that will allow the dealer to keep their $2 million dollar floor plan line of credit. This is the question that needs to be asked and resolved by December 1st, 2009 for many, if not all of the small Saab dealerships in the United States.

I hope that the new organization will be rolling out a financial support plan for these exclusives as they’ve worked so far to get to where they are today and in order to continue, they won’t be able to do this without a new line of credit.

This should be the #1 priority for Saab Cars North America right now, not the responsibility of each individual dealership as it’s just not possible given banks perspective of small volume car dealerships today. If SCNA can get a large financial institution to do this for all small Saab dealerships, then they can survive.

Tags: Automotive Component Group, bank, dealer, Director of Sales & Marketing, GM, participatory lender, Saab Automobile AB, Saab Cars North America, Small Business Administration, United States, volume car dealerships