Auto Dealers Plead for U.S. Help as Hundreds May Fail in 2009
March 7
The National Automobile Dealers Association appealed to President Barack Obama’s car industry task force for help in cutting financing costs for retailers.
The 90-minute discussion with U.S. Treasury auto advisers Steven Rattner and Ronald Bloom didn’t elicit any commitment for aid, NADA Chairman John McEleney said yesterday in an interview. The 19,700-member association expects 1,200 U.S. dealers to close this year, he said.
“We certainly did not receive a commitment and nor did we expect to,” McEleney said. “We had a very helpful discussion. We spent about one-third of our time discussing that topic.”
Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers held talks yesterday at the White House to discuss the restructuring of U.S. automakers. U.S. auto sales in February slid to the lowest rate since December 1981, led by a 53 percent plunge for GM as the recession deterred buyers and demand fell for the 16th straight month.
The group convened “cabinet-level members of the Presidential Task Force on the Auto Industry to discuss the status of restructuring plans from Chrysler LLC and General Motors Corp.,” the Treasury said in an e-mailed statement.
Owners of dealerships this week criticized the $1 trillion Term Asset-Backed Securities Loan Facility for failing to meet their most pressing need: financing to buy cars from automakers. Car sellers are complaining they don’t qualify under the program that covers only AAA-rated debt.
Auto dealers use loans from finance companies to buy cars and trucks from manufacturers. Ratings companies have ranked loans to dealers below AAA, meaning the debt can’t be bought by investors with funds from the program.
Tight Financing
Car dealers of small-to-medium size need financing to support their inventory, which is typically $5 million in vehicles, the NADA chairman said.
“Our floor traffic is off 40 percent, but our business is off 60 percent to 70 percent because people can’t get financing,” said Gordon Stewart, a Detroit-based Chevrolet dealer for 29 years. “I’ve never seen anything like this. I’ve been calling it a depression since last January and it’s only gotten worse.”
GM, seeking to keep $13.4 billion in U.S. Treasury loans and gain as much as $16.6 million more, said it needs to reduce its dealer ranks to 4,100 in 2014 from 6,246 last year. Chrysler, seeking $5 billion in addition to $4 billion already granted, said only 48 percent of buyers were approved for car loans in January.
Record Closures
U.S. auto sales fell to 13.2 million last year, a 16-year low, and slowed further in the first two months of this year. U.S. auto dealerships closed in record numbers in 2008, with the pace accelerating in the last quarter of the year as the economy collapsed.
Chrysler, which hasn’t said how many of its dealers will have to close, said in a Feb. 17 report to the U.S. Treasury that 27 percent of its retailers were “weak” as of December and 74 closed from September to December.
Shutdowns totaled 881 last year, with most coming in the fourth quarter, according to a study released Feb. 19 by Detroit- based consultant Urban Science. That was the biggest decline since recordkeeping began in 1991, the firm said.
Domestic automakers accounted for 80 percent of the car- dealer closings, Urban Science said. It counted 20,084 U.S. dealers at year end.
‘It’s Really Bad’
“A lot of our dealers, if they aren’t losing money, are right on the edge,” McEleney said. “It’s really bad.”
Ford Motor Co., which is not seeking a U.S. bailout, said in a Dec. 2 report to Congress that it estimated it had 3,790 dealers at the end of last year, a drop from 4,396 at the end of 2005.
The Obama administration is “figuring out how to be the best partner in what’s next for the auto industry,” White House press secretary Robert Gibbs told reporters traveling today with the president to a Columbus, Ohio, police academy.
“Whether the auto industry as what we have is exactly what we have in a year is something I think that is going to be determined by a lot of factors,” he said, pointing to recent requests by Toyota Motor Corp. and Honda Motor Co. for aid in Japan.
Highlighting concerns, the U.S. unemployment rate surged in February to 8.1 percent, the highest level in more than 25 years, and the economy lost more than 600,000 jobs for a third consecutive month, pointing to further reductions in spending.
The U.S. economy has now lost almost 4.4 million jobs since the recession began in December 2007, the biggest employment slump of any economic downturn in the postwar period.
“The best way to get the auto industry back up on its feet and selling cars again is to get the overall economy going again,” Gibbs said.
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