[steinravnik]

Auto Dealer Credit Squeeze Wildfire

The finance arms of the big three automakers are cutting back on credit extended to their dealers. This is putting some auto dealers in extreme jeopardy. The WSJ discusses the bleak dealer situation in Tight Credit Puts Squeeze On Big Three Auto Dealers.

The credit crunch squeezing Detroit's Big Three auto makers is now spreading to some of their dealers, adding financial pressure to a group already strained by this year's big drop in auto sales.

The latest and most prominent example is Bill Heard Enterprises Inc., one of the largest Chevrolet dealers in the country, with 2007 sales of $2.1 billion. Earlier this month GMAC LLC, the financing company partly owned by General Motors Corp., stopped doing business with Bill Heard over concerns about financial losses related to the privately owned chain of 14 stores, Bill Heard confirmed through a spokesman.

In the past, GMAC, Chrysler Financial and Ford Motor Credit were key elements in how Detroit pumped up vehicle sales. They typically offered dealers easy credit to help them sell as many cars and trucks as possible, even if they gave away some of their margin to do so.

But now that the car makers and their once-lucrative financing units are racking up losses and struggling to raise funds themselves, they are getting tougher on dealers with weak finances. And since GMAC and Chrysler Financial are both controlled by private-equity group Cerberus Capital Management LP, each is now being run to maximize profits, not auto sales.

Other domestic-brand auto dealers around the country are also feeling the pinch. In Sacramento, Calif., Winter Volvo Lincoln Mercury is preparing to close its doors on Sept. 2, after 60 years in business. Also in the Sacramento area, Elk Grove Ford closed at the end of June and Great Valley Chrysler Jeep went out of business in May. After suffering a big sales drop in the first few months of 2008, Longhorn Dodge, in Fort Worth, Texas, shut down in May.

GMAC declined to comment on Bill Heard. But a spokeswoman acknowledged that "clearly this is a challenging market environment," adding that its actions "are not different than that of other financial-service companies."

​

Auto Dealer Wildfire

Dealers are stuck with SUV and truck inventory they cannot sell and GMAC is bleeding losses so badly that it is in no position to grant subprime leases, one major way GM sold cars. Bill Heard is in particular trouble. Imagine owning 14 stores and having GMAC financing completely shut off. And remember we are only in the 3rd or 4th inning of the credit crunch.

This makes GM's Ridiculous Bluff to announce price hikes in June look even sillier. Dealers are hurting, cash strapped customers are hurting, sales are plunging and GM thought it could raise prices.

Now, games with leasing are not even an option. A few dealers have already thrown in the towel. Expect to see hundreds more before this mess is over. Dealer bankruptcies are going to spread like wildfire.

http://globaleconomicanalysis.blogspot.com/2008/08/auto-dealer-credit-squeeze-wildfire.html

 

[PAULSTS1]

Again we see unfolding grim news! Some months ago I warned others during a post about the issues facing many as a result of the Credit Crisis. Here in SoCal one of the Largest Ford, Lincoln Mercury Dealerships DON KOTT has closed. They were a big part of the sub-prime auto business, and with all the layoffs, cut backs in construction and other business closures here, the sub-prime business is the first to be hit.

One of the areas most non-finance persons don't realize is the costs involved in "Flooring" or maintaining inventory. Each month interest is charged on the amount of inventory unsold up to a certain date. This is why buyers that purchase on certain days of the month can get better deals, because allowing a dealer to sell, instead of adding to the cost of unsold items allows them to make money, instead of pay expenses. For Cadillac Dealers; It is why they prefer to have in inventory: Escalades, CTS, and DTS models, instead of: XLR, SRX, and STS models (much slower sales, costly flooring expense). I am sure Saturn Dealers are being killed with Astra's .

All of this negative information, is another reason to really watch your individual finances: Pay off debts, keep your house payment current, and listen to the background noise at work! By Christmas 2008, the words Depression could be mentioned by the media, that means we are definitely in one, and this one will not easily correct: THE USA HAS NO INFRASTRUCTURE...Our manufacturing ability has been completely outsourced: Thanks Bill Clinton!

 

[pgill00]

One of the areas most non-finance persons don't realize is the costs involved in "Flooring" or maintaining inventory. Each month interest is charged on the amount of inventory unsold up to a certain date. This is why buyers that purchase on certain days of the month can get better deals, because allowing a dealer to sell, instead of adding to the cost of unsold items allows them to make money, instead of pay expenses.

GMAC is floor planned based on the age of individual units in stock. Example: a car over 30 days old accumulates $X per day (rate*cost) and under 30 days gets $X per day credit. You usually get a better deal at the end of the month becuase you are shopping harder assuming you are going to get a better deal at the end of the month. Also, monthly incentives bonuses are tied to month-end sales but I am not sure your floor plan arguement is correct for cheaper EOM prices.

By Christmas 2008, the words Depression could be mentioned by the media, that means we are definitely in one, and this one will not easily correct: THE USA HAS NO INFRASTRUCTURE...Our manufacturing ability has been completely outsourced: Thanks Bill Clinton!

I dont think you saved the country with that statement so why bother? People are rational and maxmize thier situation based on perceived risk. You call it depression but it is really a financial rehab of 10 years of bad habits. Just stay happy and healthy and everything will work out.

 

[steinravnik]

Again we see unfolding grim news! Some months ago I warned others during a post about the issues facing many as a result of the Credit Crisis. Here in SoCal one of the Largest Ford, Lincoln Mercury Dealerships DON KOTT has closed. They were a big part of the sub-prime auto business, and with all the layoffs, cut backs in construction and other business closures here, the sub-prime business is the first to be hit.

One of the areas most non-finance persons don't realize is the costs involved in "Flooring" or maintaining inventory. Each month interest is charged on the amount of inventory unsold up to a certain date. This is why buyers that purchase on certain days of the month can get better deals, because allowing a dealer to sell, instead of adding to the cost of unsold items allows them to make money, instead of pay expenses. For Cadillac Dealers; It is why they prefer to have in inventory: Escalades, CTS, and DTS models, instead of: XLR, SRX, and STS models (much slower sales, costly flooring expense). I am sure Saturn Dealers are being killed with Astra's .

All of this negative information, is another reason to really watch your individual finances: Pay off debts, keep your house payment current, and listen to the background noise at work! By Christmas 2008, the words Depression could be mentioned by the media, that means we are definitely in one, and this one will not easily correct: THE USA HAS NO INFRASTRUCTURE...Our manufacturing ability has been completely outsourced: Thanks Bill Clinton!

Stop with the doom and gloom :

Seriously, I didn't even realize until I read this article that there was even a subprime auto lending sector. I mean, I guess it makes sense, credit was cheap so GM, et al were extending it through loans and leases to anybody and everybody.

So I guess auto sales were in their own little bubble over the past 5 years, now the weak players will get shaken out.

 

[steinravnik]

I dont think you saved the country with that statement so why bother? People are rational and maxmize thier situation based on perceived risk. You call it depression but it is really a financial rehab of 10 years of bad habits. Just stay happy and healthy and everything will work out.

I share your opitmism. We have some significant problems, but I do believe we will work through them. The working through process will devastate the unprepared, however. The problems go back more than 10 years though, more like 30 years.