Turning the Screws: Chrysler Limiting Floorplanning?

This is a breaking story and will probably be updated throughout the day.

To the casual reader, this letter from Chrysler Financial Chief Executive Officer Thomas Gilman might be confusing. What the heck is a re-advance on CMA? From my understanding, a CMA is a "Cash Management Account" that dealers contribute to (and earn interest from) and then use to pay for inventory financing. A captive financing arm, such as Chrysler financial, taps this fund to finance dealers' inventories. Bascially, "You give us money, we pay you interest and take the principle to fund inventory loans."

As the letter states, Chrysler is seeing an unprecedented outflow of money ($1.5 billion since July) from its CMA and it's taking its toll on the company. Why are dealers rushing on the funds? Simple answer: fear of bankruptcy. Many dealerships are retaining counsel to help them prepare for a manufacturer's bankruptcy. The advise that they are getting is that CMA funds would be in jeopardy if the worst should happen and GM or Chrysler would declare bankruptcy. It seems perfectly understandable that dealerships would not want to leave these funds in harm's way.

If Chrysler's CMA becomes tapped out, then it severely limits the company's ability to make loans to dealers. If dealers cannot get floorplanning assistance, then the ability to hold inventory becomes a problem. No inventory, no sales, well, you see where this one is headed.

source: wsj (cited above), bloomberg and automotive news