ORLANDO, FLa. — With so much news — at times, conflicting — coming out of Washington, there was no better place to be yesterday than in a room brimming with lenders and industry executives.
After President Barack Obama’s address about reviving the auto industry, which was streamed live into the conference hall, attendees at the Consumer Bankers Association’s Auto Finance Conference were buzzing. Some folks were encouraged by the President’s recognition of the import of our industry, while others objected to the ouster of GM CEO Rick Wagoner. Some contended that 30 days was not enough time for Chrysler to finalize a deal with Fiat, while others suggested that the short timeframe was indicative of an imminent deal.
Discussions bounced back and forth all day, but one theme recurred: What will happen to dealers and how will capital be restored to the floorplan business?
Lenders from banks nationwide have noticed increases in the number of dealers “out of trust” — those who sell vehicles without repaying their floorplan providers. And floorplan restrictions won’t lift anytime soon. Though floorplan loans are eligible for the government’s Term Asset-Backed Securities Loan Facility (TALF), the likelihood of a floorplan securitization is slim because of the requirement for a triple-A rating.
Mike Jackson, chairman and CEO of AutoNation, summed up the situation this way: “Our industry is going to go into cardiac arrest if we do everything else and don’t find a solution for floorplan.”
Floor plans provide an opportunity to develop rapport with new or expanding dealerships in hope of developing strategic access to the “good contracts on car financing” where most of consumer credit growth, profitaility, and access to good relationship customers can come from. It is tough to make a good profit on many poorly designed floor plan lines and losses are large when you have to liquidate a floor plan. This was especially true when competing with captive finance companies and their liberal approach to this topic. If a bank lost a floor plan to a captive, the bank should look at itself first and assess what it did wrong. It usually starts with a lack of rapport.
The challenge is to have enough trust and confidence developed to educate car dealers that bank car contract financing can be good for them if they are prudent. Unfortunately, many of them are not.
For example, when you graph 5, 6 and 7 year car financing against car resale values, anyone can understand that the borrower is “upside down” for too many years. Then when credit tightens, too many people cannot qualify for a car purchase without 120% financing. And auto sales drop from 16 million units to 8 million units such as the present. Strong auto credit administrators can remind the good dealers on these fundamentals and then develop good profitable floor plans in these trying times linked to first look contract volume.
Just a thought.
You may find that end-of-year discounts/dealer & factory rebates, factory sales contests,etc to clear out 2011 inventory are a good reason to buy cars cars in December; and end-of-year financial numbers are very important to bank credit officers which means that manufacturers and dealers have an added incentive. The public understands this is a good time to buy a 2011 vehicle for sure and may be a good time for 2012’s.
Additionally, some trucks and large SUV’s may qualify for IRS deductions of full write-off or faster depreciation which has been in place for years past and probably will end this year. If a buyer has a choice to buy in December or January, it could make tax sense to buy in December.
And there are people that do give cars for Xmas gifts. Just look at upscale geo-codes to look for clues.
These are people that may get big bonuses (look at “heavy jewelry” sales from Tiffany’s as an example of big ticket gifts from the 1% crowd).
Awareness can be created by touching people just as you were touched enough to write your post. Car buying is not all rational – emotions play a big role.
Good post!