You can be excused for having missed the following news item (heck, when WaMu, our family’s bank, went out of business last week, I didn’t notice until two days later; there’s been a lot going on). Sometime this week, the Detroit Three, General Motors, Ford and Chrysler, will see the first $7.5 billion of their $25 billion bailout, courtesy of we, the people. It’s supposed to go for technology research and development and upgrading manufacturing plants to produce the fuel-efficient cars, trucks and crossovers Americans want.
But like you and I, the nation’s 21,534 new car dealerships aren’t getting a bailout, and they’re finding credit just as tight as other businesses (by the way, if you are getting a bailout, drop me an e-mail).
Sven Sjodin, sales manager at Toyota Santa Monica, told us that, not surprisingly, the store has seen a “paradigm shift” in what customers have been asking for since gas went to $5 a gallon.
“Just a few months ago, we were the number one Land Cruiser dealer in the entire country,” Sjodin said, referring to the big, thirsty Toyota V8 SUVs. “And now we’re number two in the country in Prius sales. That’s how fast and drastically things have changed.”
The sales and service facility has been at the corner of Lincoln and Santa Monica boulevards for decades, and the company, like many dealerships, is heavily involved in supporting community activities, from charity walks to the Little League.
In the first eight months of this year, Toyota Santa Monica sold about 2,530 new cars and trucks. Now, class, keeping in mind that the average new car or truck sold in the U.S. costs about $30,000. That’s a whole lot of money; over $75 million, in fact.
But like any successful business, most of what it makes never leaves the store, and along with civic involvement, this dealer also employs over 100 people from our local area. Anything which slows their business poses a danger to all those activities and, especially, to those employees and their families, and all the stores where they trade … and so on, and so on.
Dealers buy their cars from a carmaker, similarly to how we buy them from a dealer. They just buy a whole lot of them. And they finance those purchases, also like we do, but dealers need millions of dollars when they go car-shopping.
The world’s largest Chevrolet dealer group, made-up of 13 dealerships, closed its doors last week and has filed bankruptcy. Its first family-owned store opened almost 90 years ago. Spread over several states, mostly in the Southeast, the group employed 2,700 and last year had sales of $2.13 billion. They cited problems getting credit with GMAC Finance as a large reason for its failure. Imagine the effect on all those local economies of the closures and lay-offs. Forget supporting the Little League; people will be losing their homes.
Similar credit problems because of the U.S.’ dour economy are already hitting dealerships in Asia and Europe. They say, “When the U.S. sneezes, the world catches cold,” and this economic virus is insidious.
Mazda, which is controlled by Ford, just announced that beginning next month their nearly-300 American dealers will stop using Ford Motor Credit and rely instead on Chase Auto Finance. One large Mazda dealer, from Dallas, said, “It’s a good fit. Chase is financially sound, and their borrowing costs are much lower than Ford’s.”
Last week, Caterpillar Corp., the American maker of heavy equipment, engines and huge earth-moving vehicles, and one of the oldest, most-honored and successful manufacturers in the country, found itself in a serious financial fix.
To keep their doors open, their plants running, their vehicles delivered to buyers and their salespeople and service technicians flying around the globe, Caterpillar needed a $1 billion line of credit. They found it, but at twice the interest rate they could have gotten just days before (3.5 percent vs. 7 percent). That’s the difference between $35 million and $70 million in interest payments. All for, “the cost of doing business.”
In this credit market, which is not just tight but effectively closed to many businesses, local car dealers are having credit problems like Cat, though naturally on a smaller scale. But when the corner dealership starts laying-off people or shuts its doors, it’s the local community which gets hit hardest.
It’s always good to shop locally and support neighbors. But if the car dealer on the corner can’t finance the new cars and trucks which customers want to buy, there could be slim pickings on the showroom floor.
Steve Parker has covered the world’s auto industry for over 35 years. He’s a two-time Emmy Award-winner who reported on cars for almost a decade at both KTLA/TV5 and KCBS/TV2. He is a consultant to the NBC-TV show Whipnotic and the show’s companion website, www.Whipnotic.com. He created, writes and moderates the only all-automotive blog on The Huffington Post at www.huffingtonpost.com/steve-parker. Contact Steve through his own automotive issues Web site at www.SteveParker.com.