With my head pounding from all the talk about layoffs, shutdowns, stalled sales, and ousted executives, I’ve got a new theory on the way out of this automotive crisis: Hand it over to the people. No, I don’t mean put Joe Consumer in charge of the Auto Task Force or appoint Jane Car-Shopper head of a domestic automaker. What we have to do is get people into dealership showrooms, ready to buy cars.
Duh, that’s obvious, Marcie. If it’s so simple, why hasn’t it worked so far? What we need is a more aggressive, concerted effort on the part of manufacturers, dealers, and lenders to show consumers that vehicle purchases are feasible and not so daunting.
Some automakers have started. Hyundai launched its Assurance plan that guarantees payment help should an auto-loan borrower lose his job. GM and Ford have similar programs, as well. Some banks, meanwhile, have programs that enable borrowers struggling with payment problems to pay only a percentage of their monthly payment — say 5% of a $300 payment.
Dealers and lenders need to get the message across that there are less expensive used cars — good, quality cars — available, with perfectly attainable financing options. Consumers need to know what is expected of them. Sure, the lending environment has changed, but there are still plenty of financiers out there making loans to credit tiers across the spectrum. As long as the credit equation remains hazy, though, consumers will shy away.
Enlist the nation’s brightest marketing gurus. Start an ad campaign. Start touting the benefits of vehicle sales and financing.
There’s certainly pent-up demand. Vehicle sales have been logging about a nine-million-unit pace this year, a far cry from a more normalized 14-million-unit rate. So people need cars. They’re just afraid to buy them.
We need to crack the code. Keep coming up with ideas to penetrate the consumer DNA. If one thing doesn’t work, get back up and try something else. Once we get that initial trickle, we can turn it into a steady stream of car-buying consumers.
Need to revisit tax credits- the junker credit should help on both the enviroment and sales front
Good point. The scrappage incentive in the U.K. is expected to boost sales — we ought to get it moving here, too.
I think it’s important to remember that every little bit helps. If we can increase sales minimally on a number of fronts, we should be able to make a dent in the sales slowdown. Then, hopefully, we’ll begin to see a snowball effect…
We have deep government involvement in the industry, which breeds paralysis while folks wait to see what the government will do next. No one wants to buy and then have a major incentive program announced that they have missed because they acted to soon. We now have discussions of a “Cash for Clunkers” plan. I’m sure some consumers are waiting to see what additional benefits might be available to them. Another group wants to make sure they don’t buy a vehicle soon to be orphaned. Many dealers have stopped ordering vehicles from GM and Chrysler because they don’t want to get caught with “orphaned inventory” and/or their lenders might have put them on “finance hold” or pulled their floor plan completely due to impending bankruptcy with the associated loss of new vehicle “buy back” by the OEM which is obligated in the franchise agreement but voided in the case of bankruptcy. Once resolution on these many issues is reached pent up demand will open the floodgates.
Marcie,
You really are new to auto lending. It is good to see your view because it reminds people, who have been around the business too long, how younger people view the business.
The short answer to the problem is not pleasant because it requires “time”. The US consumer became overcommitted because loose financing alowed them to “have it all now” instead of aquiring the “good life” in a responsible manner that correlates with their real income and position in life. When the pendalum of the economy (supported by the financiang gurus) was swinging wildly to allow this happen, it must now swing the other way to bring things into equilibrium. Simply look at the US median income (not average income) and you will see the midpoint of where everyone is at. Then build a budget for them and then match it against their actual debt load. Too much mortgage debt, too much auto debt, too much credit card debt, and for many (large amounts of student loan debt), etc.
We have met the enemy and it is us. Time will cure it. David Ruggles is correct and “pent up demand” will result in showroom traffic. The question is “What can the public afford (actually able to pay) with a reasonable down payment?” Yes, I said an actual down payment of something or no more than 100% financing for super-prime consumers. No more upside down financing. No more extended term financing. It will take TIME. And good lenders will not allow consumers to get over-indebted again (at least until the next generation has to learn their lesson).
Thanks for the input, Frank. I understand that it takes time to reverse the loose underwriting standards that car buyers have become accustomed to over the years. It’s easy to get used to having money thrown at you (in the form of excessive rebates and 140% advances) and loan terms extended to enable the purchase of vehicles consumers can’t really afford and should never be considering in the first place. It’s decidedly more difficult to reverse that course.
My proposal, though, is that there are still consumers who need cars, there are lenders willing to make loans on those cars, and there are terms that at perfectly attainable. I’m not suggesting that every consumer in the market for a vehicle should — or could — buy one. But if consumers would take a more realistic approach — with lenders, dealers, and manufacturers helping them navigate the course — we might be able to pull ourselves out of this rut.
Consumers need to be reminded that it’s OK to buy a used car – even one that’s 5 or 6 years old. They need to overcome the perception that credit is unavailable unless they have pristine credit. Sure, they’ll need to cough up more for a down payment than they have in the past, and they’ll have to find a vehicle whose cost doesn’t need to be amortized over 84 months to make it affordable, but dealers and lenders are here to help. We’re all in this together, and we need to show a united front to consumers who are confused and frustrated.
Ultimately, you’re right, time will win out. No matter what the government dictates — whether it’s for Fiat to buy Chrysler, for GMAC to merge with Chrysler Financial, or some other as-yet-unveiled idea — eventually the industry will right itself. I’m just suggesting that if we could get together on this and be more proactive in educating consumers, we might speed up the process.