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The Auto Credit Crisis: It's Real
2008-10-11
While Ed Wallace claims in his Oct. 8 column that there is no auto credit crisis (BusinessWeek.com, 10/7/08), I invite him to actually talk with any of the thousands of customers who couldn't secure adequate financing on a new vehicle purchase this past month. I also invite him to ask me about how things look from the point of view of Mike Jackson, chairman and CEO of America's largest automotive retailer, AutoNation (NYSE:AN - News). In fact I'm surprised that he hasn't, considering that he made a statement about Mr. Jackson and his thoughts on the credit crisis but never even called the company to get his point of view on what they had been saying. In fact, Mike Jackson is one of the most accessible CEOs in America who visits with customers and associates at every chance. Had Mr. Wallace done so, I could have given him ample evidence of the drag that tightening credit is having on vehicle sales. With more than 250 dealerships across the country, we're talking with customers every day who can't get the financing they might have qualified for a year ago. It's in the Data Week in and week out, we collect terabytes of financial data, transaction records, sales statistics, and more, and the story it tells is incontrovertible: The credit crunch is real, it's pervasive, and it's directly affecting all auto retailers. Worse still, it cuts across all areas of the business, affecting not only people with shaky credit to begin with, but also people who would normally be virtually guaranteed financing. Back in 2007, for example, we were qualifying 90% of our Tier 1 shoppers. Today, we're lucky to qualify 60%. But don't take my word for it. General Motors (NYSE:GM - News) and Ford (NYSE:F - News) in their September conference calls stated that the tight credit market was taking a toll on their business. And Senate Majority Leader Harry Reid (D-Nev.), in discussing the bailout package, talked about an auto dealer friend of his who was having trouble getting credit for his customers. CNW Research recently said that only 64% of consumers applying for auto loans so far this year have been approved, compared to 83% a year ago. It's Impacting the Entire Auto Industry Other dealers might not feel as comfortable as we do talking about the situation publicly -- after all, as Mr. Wallace notes, confidence is a big driver of consumer spending, and no one wants to say anything that might further erode consumer confidence. Mr. Jackson has been the industry leader who called out the housing crisis, the problem with high inventories, and the shift in vehicle preference. We're unafraid to state, as the leading retailer in America, just how damaging the credit crisis is to us and everyone else who makes a living manufacturing, selling, financing and servicing vehicles. It's something that all of us in the business recognize implicitly, and something that Mr. Wallace could have recognized, too -- if he had only taken the time to call us.
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