Auto dealers feeling pain of credit crunch
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Georgia-based Bill Heard Enterprises, which operated the nation’s largest chain of Chevrolet dealerships, ceased operations on Sept. 24, blaming difficult financing conditions and the declining automobile market.
The pressure is also on for Detroit’s auto-finance companies, including GMAC Financial Services, Chrysler Financial and Ford Credit.
While they’re supposed to make it easier for consumers to buy vehicles at the major automakers, a tighter credit market means they’re reducing their exposure to risk, according to Jessica Caldwell, manager of pricing and industry analysis at automotive research Web site Edmunds.com.
“So only those with good credit have a chance of financing,” she said. In September the average down payment on an auto loan rose to over $3,000 for the first time in a few years, while the annual percentage rate on auto loans rose to its highest level since February, she said.
The three auto financing companies have either eliminated their leasing programs or pared them back substantially. They’ve lost billions of dollars in their leasing operations because the weak auto market means those leased vehicles are worth significantly less at the end of the lease terms, Caldwell said.
All three financing companies are lobbying to be included in the Federal Reserve’s $700 billion bailout plan that was originally intended to take on troubled mortgages. The auto financing companies want their bad loans covered too. Congress already has approved $25 billion in federal loans to help bail out the auto industry.
“So they’ve lost billions of dollars and now people aren’t buying cars, so they’re getting hit at a time when they don’t have a lot of financial stability” said Caldwell.
McEleney says the enactment of the $700 billion financial rescue plan for Wall Street, which was passed by the Senate and is awaiting its fate in the House of Representatives, would go a long way toward stemming the current plunge in auto sales.
“From my standpoint, we need to get this rescue plan approved,” he said. “There’s so much lack of consumer confidence out there, and people are worried about their jobs; the plan is better than no resolution, and it would prevent auto sales from deteriorating more than they have to. I think it would go along ways to helping the auto sales numbers and I think most dealers would agree with me.”
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