The auto industry is taking on water fast. Here are some headlines from the past few days:
• Ford announces $129 million 3Q loss, burns $7.7 billion in cash
• AutoNation posts $1.41 billion loss
• Toyota feeling 8-year low as profits plunge
• S&P cuts Nissan outlook to negative
• Carmakers to talk funding with Pelosi
• Lithia Motors sells three more stores
• Tough year for autos hits Nicholas Financial’s bottom line
• GMAC has $2.52 billion loss
• S&P cuts BMW AG long-term rating
Captives, dealership groups, independent financiers — they’re all feeling substantial pain, and there’s little chance it will subside anytime soon.
So what’s the prognosis? We’re going to have a major shakeout; it’s the only way to get this ship righted. Here’s my prediction: At least one major captive will disappear. Probably 1,000 dealerships will go out of business. And a handful of independent lenders will shut their doors.
The strong will survive, but even for them, the road will be tough.
The unemployment rates are already high, this would cause them to skyrocket even higher. Where do all the new jobs come from to absorb all these unemployed workers, not to mention those currently already unemployed.
A handful of independent lenders have actually already shut their doors! I’m guessing it will be more like an “armful”!!
A few small local dealerships here in Jax have started closing their doors as well.
As a percent of the total I do not expect to see a higher incidence of delinquencies and defaults. From what I understand, the quality of paper was above what it normally is. A spike in unemployment might have an impact, but I don’t expect unemployment to get much higher until it begins to recede. I’ve seen no evidence that C4C buyers were inordinately skewed toward first time buyers. A larger than normal percentage might have been folks who bought new vehicles for the first time, but that doesn’t necessarily indicate their payments were appreciably higher than for pre-owned buyers. Their conservative nature might have caused them to feel guilty about using taxpayer money for their purchase and/or for purchasing new instead of pre-owned. I don’t think it is a big deal at all. I don’t understand the part about the insurance spike. In many cases, the additional safety and anti theft systems on new vehicles moderates insurance premiums. At any rate, I don’t see that as a big deal either. I suspect Mr. Hoppe wrote his piece based on his own perceptions rather than on any real data or personal experience.