Car dealers get a $2 billion bailout

THE Rudd government has struck a $2 billion deal with Australia’s leading banks that will keep car dealers trading after financiers GMAC and GE Money withdraw from the market at the end of this month.

Treasurer Wayne Swan today announced that a financing trust known as a Special Purpose Vehicle (SPV) will be established over the next three weeks with the support of ANZ, the Commonwealth Bank of Australia, the National Australia Bank and Westpac “to provide liquidity to car dealer financiers who have encountered financing difficulties as a result of the global financial crisis”.

Credit Suisse is providing technical support for the SPV, which will come into force on January 1, 2009, and operate for a period of 12 months, after which the funding level will run down. It covers only wholesale floorplan financing and is designed to provide liquidity for financiers through the securitisation of eligible loans provided to car dealers.

Mr Swan described the trust as a “private sector solution” that was finalised today after a further meeting with the chief executives of the ‘Big 4’ banks. It comes after several weeks of intense negotiations led by Future Fund chairman David Murray and involving federal treasury, the banks, car dealer financiers and the automotive industry.

Left: Federal treasurer Wayne Swan.

“The automotive industry plays a vital role in Australia’s economy, supporting many thousands of Australian jobs, and today’s announcement will support a stable and viable future for the industry in the face of very difficult global conditions,” Mr Swan said.

“The recent announcement by two major car dealer financiers, GE Money Motor Solutions and GMAC, to exit the Australian dealer floorplan financing market is a result of ongoing global financial challenges. This has placed great pressure on a large number of car dealerships and the Australian automotive industry more generally.” Mr Swan said the government would provide support to the SPV in the form of a guarantee expected to cover a minor proportion of the securities issued.

“The SPV will be designed to support viable businesses. It will not seek to provide an artificial lifeline to unviable dealerships. The eligibility criteria that will apply will be fair and transparent,” he said.

“This is a transitional arrangement only and will remain in place until viable dealers establish new funding arrangements. Financiers who have refinanced GE- or GMAC-financed dealerships since those companies announced their withdrawal from the market will be eligible for SPV funding provided they meet the SPV’s eligibility criteria.” The SPV covers new-vehicle and mixed-vehicle dealerships that trade cars, trucks, motorcycles, boats, caravans and other commercial vehicles “so long as they are currently financed by GE Money Motor Solutions or GMAC”.

Mr Swan said that in light of the overall economic climate it was possible that “some unviable dealerships will leave the industry”. But he remained upbeat about the future.

“Today’s announcement will help ensure the long-term viability of the automotive industry and forms part of the government’s commitment to protect jobs in this vital industry and right across the Australian economy,” he said.

Reaction canvassed tonight from the automotive industry, including the Federal Chamber of Automotive Industries (FCAI), has been positive.

“This is a decisive response to extraordinary circumstances brought about by the global financial crisis,” said FCAI chief executive Andrew McKellar. “These are complex issues but the government has acted quickly and effectively in an effort to head off a potential crisis.

“The bottom line is: this response will save jobs in the industry. Our objective now is to ensure a managed transition for those seeking new sources of finance, to stabilise the market and prevent the unnecessary withdrawal of any other credit providers.” Victoria’s peak industry body, the Victorian Automobile Chamber of Commerce (VACC), also welcomed the breakthrough.

“This is most welcome news for new car dealers, in particular, and the Australian economy as a whole,” said VACC executive director David Purchase. “The Australian Automobile Dealer Association (Vic), the new-car division of the VACC, has been working hard to assist dealers since GE Money and GMAC announced they were withdrawing from motor floorplan finance.

“Today’s outcome is a creative solution to the problem, and the federal government and banks involved are to be commended. The 60-day notice period provided by GMAC and GE Money was too short, and VACC was among the many voices calling for a deadline extension.

“AADA (Vic) and VACC will continue to work with our new- and used-car dealers to ensure they are well-equipped to ride out this economic slowdown.”

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