GMAC's demand for a Dealer's Personal Guarantee
 

XDCX please don't let me hijack this post so move this as you desire. Back when GMAC took over CFC I refused to sign the Retail agreement due to the dealer's PERSONAL guaranty. I have never had to sign personaly for my floorplan let alone a retail contract. Chrysler told me I could not go forward with the new company unless I signed it so I did but planned never to use GMAC. I am still trying to get a clarification as to the real impact of this liability. Some tell me it is minor and only applies to unearned reserve. Some tell me it is a major concern because of the clause that says any dispute that is unresolved for 90 days we buy back. Imagine how much that would be if the "unthinkable" happened and Chrysler went bankrupt... or quit paying waranties, or ??? Most dealers I speak to say they did'nt even read it because they had no choice and I can understand their position. At the time NADA was telling dealers they were VERY concerned with it but stopped short of saying not to sign it. I live by the motto "Expect the best but never fail to prepare for the worst". Any help would be appreciated.

Kitfox,

I would 1st recommend doing a UCC search on your store to see who and what has UCC liens against your store. Sounds to me like you were made to sign a P.G. for the retail portion of your dealings with GMAC but I would double check.

GMAC's demand for a Dealer's Personal Guarantee
 

As before, I'm not an expert but I remember GMAC's demand for a Personal Guarantee was a hot issue during the CF to GMAC transition. Like you pointed out, most dealers didn't have a choice since GMAC was the only lender willing to issue floorplans to Chrysler dealers at the time.

As it relates to retail contracts, my bet is the GMAC lawyers wanted an agreement that allows them to pierce the corporate shield and attach the dealer's personal assets in the case of fraud. (Failure to pay trade liens, failure to remit Service Contract premiums, etc.)

I know of several examples where the finance source was required to pay for Service Contract premiums when a dealership closed and failed to remit payment. Without a personal guarantee the bank wouldn't be able to go after the dealer for payment.

Does anyone else have example of how GMAC might be able to use a Personal Guarantee against a dealer?

XDCX. I believe you are correct that some lenders were left holding the bag when dealers failed or even commited fraud and that this may be a valid response from them but I don't like building "unrecognized" liabilities. I have several friends who spent their entire life building their dealerships and family wealth only to have it destroyed last year when "what could never happen" happened. Speaking of liabilities I think your lenders such as floor plan, working capital, etc would be very concerned about these off balance sheet liabilties.

In life we cannot elimnate risk - we can only manage it, and that is what I am trying to do. I have spoken to NADA and another trade group. Both feel the liability is broad and significant "IF" it is ever demanded. So.

How have any of you addressed this issue?
Do any of you feel it is not worth worrying about?
Has anyone gotten GMAC to release them?
Has anyone else refused to use GMAC for this reason?

IMO: The personal guarantee is redundant in the event of fraud. If you control a corporation fraud can pierce the corporate veil as well as any protection through personal bankruptcy. Even if you did not directly commit the act but you are in a position to direct or control the actions of the person that committed fraud you can be held personally liable. The personal guarantee just quickly cuts through the red tap.

We didn’t like it but signed the GMAC PG. We didn’t see any additional hidden liability because fraud would have to occur & be proven.

When our dealership was terminated, Chrysler Financial required us to pay for "unrecognized" liabilities, such as repos on vehicles we had previously sold, for the most part this would have amounted to serv. contracts, gap ins. and whatever else was added to the loan. The original amount they asked for was $150,000, which was a per cent of our outstanding portfolio. We were able to settle for a smaller amount. We would not have paid it at all if it had not been for the personal guarantees. They were entitled to have UCC liens filed for an additional 7 years.
These liens would have made it difficult for us to move forward.
We also were told these were needed to protect the manufacturer from "fraudulent" dealers, but I now know the only person really protected was CF.