Calling the auto industry the “backbone” of U.S. manufacturing, President-elect Barack Obama has already pressed President George Bush to free up additional funds earmarked for the struggling domestic automakers.
But vehicle manufacturers are only one component of the beleaguered auto industry. Lenders and dealers currently face severe pressure amid plummeting sales and deteriorating credit. Unless Obama increases his focus on the companies that provide financing, vehicle sales will continue to contract, auto finance executives contend.
Auto Finance News polled financiers about expectations, challenges, and concerns for the auto finance industry in the wake of the election of our new president. Here is a sampling of their responses.
Dave Shevsky, commercial credit risk officer at GMAC LLC:
“The issue that is getting the most attention is the loans to the Big Three to keep them in business. What is not getting enough attention is the related finance companies. GM/Ford/Chrysler may get billions from the government, but their sales will probably not improve unless credit opens up. Funding challenges is the main issue — absent a reasonable opening of credit, sales will remain much lower than historically. Many dealers are not able to close sales due to the customer’s inability to get financed, but many are also saying they don’t have enough showroom traffic. So the expectations are very high for the president-elect, and are probably too high — the mortgage market started the ball rolling on this, and the level of unsold homes needs to get in-line (probably another 18 months away, if not 24) so that consumer confidence gets restored. Absent the consumer confidence improving, I don’t see how the market improves.”
Gary Perdue, president of Southside Financial Group LLC:
“The auto industry appears to be getting some attention from Obama in terms of wanting to help the Big Three with loans. I think it’s critical that continued attention is given to the credit markets, as consumers can’t buy new or used cars without financing and at the present time, the lack of capital for auto finance companies is limiting their ability to lend to consumers and car dealers. This situation is not only a threat to the Big Three, but to the auto dealers, as well.”
Bobby Lazenby, president of Lazenby & Associates and Navigator Holdings LLC:
“Short of the government self-funding the financing needs of auto buyers, I am not sure what effect the new president can have on our industry. The Big Three are not selling cars due to the lack of liquidity or financing at the consumer level, not due to their need to re-tool their plants to produce green automobiles. Until the credit markets provide liquidity, we will continue to see automobile dealerships closing at an accelerated pace.”
Thomas B. Hudson, partner at Hudson Cook LLP and author of CARLAW:
“I see a few challenges for auto finance when the Democrats control both the White House and the Congress. I predict that the consumer advocates and the trial lawyers will seek to change the Federal Arbitration Act to prohibit its use by dealers in auto sale and finance transactions, or perhaps more broadly, in any consumer transactions. There will also be an effort to change the federal Truth in Lending Act to make it applicable to a broader range of transactions — it now does not apply if the amount financed in a transaction exceeds $25,000. And despite everything that the federal government can do, I see more restrictive credit requirements for car financing — larger required down payments, shorter terms, and stricter underwriting.”