A Connecticut-chartered company is working to develop a major financing entity for local auto dealers, many of which have seen access to credit dry up in recent months.
Dealer Capital Group, led by a group of former bankers, is attempting to assemble a network of locally based community and regional banks that will pool together their money in order to provide floor plan loans to local auto dealers.
Floor-plan financing, also known as inventory loans, allows dealers to purchase vehicles from manufacturers and carry them on their lots until they find a buyer.
Since the onset of the financial crisis, many floor plan lenders have pulled out of the market or raised their rates and terms, leaving local dealers out in the cold.
Dealer Capital is looking to fill that void and save dozens of dealerships in Southern New England, which could potentially go out of business unless they find credit.
“We want to become known as leaders in floor plan lending in Southern New England,” said Chris Peck, president and founder of Dealer Capital Group, which operates out of Massachusetts.
“We intend to be a single focused company so we are not going to go in and out of the market,” Peck said.
Dealer Capital’s business model is unique because it incorporates regional and community banks, which have not traditionally offered floor plan loans because they are too capital intensive and they lack the expertise.
The challenge Dealer Capital faces is to convince banks to enter a new business segment in a time of great uncertainty within the auto industry.
But John Spatcher, a partner in the dealer services group at Blum Shapiro, an accounting firm in West Hartford, said he thinks some banks will participate.
“I believe they have the capital to do this and that some banks are definitely going to be interested,” Spatcher said.
Peck said the company expects to have three to 10 banks on board by summer, and is hoping to expand that base to 18 to 25 banks in a year and a half. He said they are working to finalize agreements with their first members.
Hartford-based Connecticut Bank & Trust Co. is one bank considering the network, according to Lyle Fulton, CBT’s chief lending officer.
“In times like this there are opportunities out there for banks to get into new business lines,” he said. “But we have to make sure it complies with our risk tolerance.”
Dealer Capital is also trying to raise private and public funds to acquire floor plan businesses of major U.S. banks in the Northeast market, which would give it national credibility in the business segment.
“We don’t want to be a lender of last resort,” said Rob Cook, chief administrative officer of Dealer Capital Group. “We want to be a dominant player in Southern New England.”
Peck said the company’s goal is to provide between $500 million and $1 billion in lending capital. In New England, the total market for floor plan lending is about $5 billion to $7 billion, Cook said.
Industry insiders across the country are taking notice of Dealer Capital’s innovative model and some say it could be the wave of the future for how the industry is financed.
“It’s an innovative way to approach the situation,” said Bailey Wood, a spokesman for the National Automobile Dealers Association. “It will help fill a significant need. I think thousands of dealers across the country would be interested in becoming customers.”
Peck, who has spent 25 years in banking at institutions like Citizens and Sovereign banks, including more than a decade in floor plan financing, said he has strong ties with many dealers in southern New England, which will give the company immediate credibility.
“We have names here that dealers would recognize and trust,” said Peck, referring to the company’s dozen or so employees, many of which have extensive underwriting experience in floor plan financing.
Currently, most floor plan lending is done by larger banks, but they do not usually consider it a core business segment. As a result many banks are pulling out or raising rates because they don’t want to deal with the ailing auto industry, Peck said.
In Connecticut, for example, 45 auto dealers were notified in December that Sovereign Bank was pulling out of the business and that the dealers had to find alternative sources of financing. The Hartford Business Journal reported last month that more half of those dealers have been unable to find alternative financing, which could eventually lead to their demise.
Sources, who asked not be identified, told HBJ that Sovereign Bank has been looking for a potential buyer of its floor plan business. Sovereign Bank did not return a call seeking comment.
A spokesman for Citizens Bank, another floor plan lender, said that the company is no longer writing new floor plan business.
Peck said banks will be attracted to Dealer Capital because it’s a “great cross-sell opportunity and diversification play.”
“It’s a very good steady revenue stream for them,” he added.
Reader response:
“THE IDEA OF DEALER CAPITAL SOUNDS FANTASTIC…WITH GM AND CHRYSLER ATTEMPTING TO ELIMINATE APPROXIMENTALLY 2500 DEALERS ACROSS THE US THIS YEAR WHICH THEY BELIEVE WILL MAKE THE SURVIVING DEALERS STRONGER…AND NOT MAKING FLOORING AVAILABLE TO THOSE DEALERS…A COMPANY LIKE DEALER CAPITAL COULD BE THE BACKBONE A DEALER NEEDS TO FIGHT BACK TO KEEP OUR FANCHISES THAT OUR FAMILY HAS HAD FOR 60 YEARS! WE WISH YOU LUCK AND HOPE TO HEAR MORE IN THE MONTHS TO COME! ” — Peter Linder, Linder Dodge and Jeep
