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Tell Congress how Big 3 defaults would reach deep in communities

November 17, 2010

Congress delayed until Dec. 2 consideration of $25 billion loans for Detroit’s Big Three, with Democratic leaders demanding on Nov. 20 that leaders of the automakers develop business plans to assure the money would make them economically viable.

Dealers must contact their congressmen about what is at stake for Main Street if lawmakers fail to act on an automotive stabilization package.

The National Automobile Dealers Association purchased a full-page ad in Nov. 17 USA Today and in other papers to detail the impact of dealers on their community involvement and their contribution to state and local sales tax revenue.

The NADA also developed several talking points for dealers and other constituents to share with their congressmen, to help the lawmakers understand what is at stake for Main Street if an automotive stabilization package is not approved. See www.nada.org.

Some federal legislators believe a prearranged run through Chapter 11 would give the companies more latitude to postpone payments to creditors, renegotiate contracts, raise capital, and reorganize to stay alive.

But just as financial institutions depend on the confidence of those with whom they do business, automakers depend on the confidence of car buyers.

To purchase a car is to make a multiyear commitment, and the buyer wants confidence that the manufacturer will survive to provide parts and service under warranty. With a declaration of bankruptcy, that confidence evaporates.

A recent industry survey indicates 80 percent of consumers would not even consider buying a car or truck from a bankrupt manufacturer because they would lack confidence that the manufacturer would survive to provide parts and service under warranty.

Almost every carmaker that has ever gone bankrupt has disappeared for good. And there is no reason to believe the Big Three would not do the same. Chapter 11 filing would almost surely lead to liquidation.

Another federal bill to help move metal is the Auto Ownership Tax Assistance Amendment, which would allow a consumer to deduct the excise tax and the interest payments for the life of the loan on any new vehicle purchased by Dec. 31. But House and Senate versions of the legislation have made little progress since they were introduced.

The NADA also is involved in an effort to gain access to more working capital for dealers through the Small Business Administration. The NADA wants the SBA to implement an auto dealer loan guarantee program, to help dealers acquire needed working capital for business operations

The NADA also launched a free, confidential telephone hotline service to help members who want help with financial and operational issues. To schedule a consultation, visit www.nada.org/Lifeline or call 888-672-5147.

 

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