Car dealer credit crisis continues

THE future of more than half of Australia’s car dealers remains uncertain, despite intensive initial attempts by representative automotive industry groups and government to fill a $4 billion credit shortfall created by the exodus from Australia of major US financiers GMAC and GE Money.

As GoAuto revealed last week, the Motor Traders’ Association of NSW (MTA NSW) has approached a major unnamed bank in its attempt to secure replacement finance for the nearly 1300 new and used car dealers it represents, most of which face the prospect of losing their floor stock when GMAC and GE cease to make available automotive finance on December 31.

Those negotiations remain ongoing and it is understood the Victorian Automotive Chamber of Commerce (VACC) will also hold a crisis meeting with its dealers, finance companies and the Victorian government on Thursday.

“We are in discussions with a major bank and the federal government, which now fully understands the consequences for the national economy and which is as concerned as we are. Hopefully we will find some solution that minimises the effect on dealerships,” MTA NSW CEO James McCall told GoAuto this week.

“We’re not at liberty to disclose the name of the bank as yet because they haven’t given us an answer, but we’ve had fairly detailed discussions and they’ve gone away to consider their position.

“Through the federation, the MTAA, we’ve also had very intense discussions with the highest level of government in the prime minister’s office and with a number of other ministers, so the prime minister and treasurer are very aware of the problem now.

“They not only understand the implications to the motor industry but the implications for the whole of the economy. They’re very concerned about it and they’ve told their department they want a daily update on the situation,” said Mr McCall.

Talks between the federal government and the national MTAA late last week could also result in regulatory action to provide affected dealers with more time to secure alternative finance from Australia’s remaining major independent motor finance companies.

“We’re also making some representations to government on some initiatives that they might take that might help the situation. There might be some regulatory power that they have to delay those two companies moving out of Australia for a short period of time.

“If we got another three months after the end of December to the end of March, that gives us a bit of time to work something out and that’s what we’d be hoping to achieve. (But) as far as getting money from the government, I would consider that highly unlikely,” he said.

But Mr McCall said new finance arrangements were not being extended to most dealers.

“Some of the other financiers are opening their books to very, very select dealerships. In other words they’re going into the ones that are good and strong, and we’re not talking about a lot of dealerships there, but the bulk of them are not being included in those sorts of offers.

“Probably over half of the dealers were financed with GE or GMAC. If you have dealerships close in high numbers you’re talking about 1500 employees not having a job and that’s only in NSW, which would have deep consequences for the NSW economy as well as the motor industry.

“The consequential effects also include the fact that if these dealerships close the vehicles they have in their showrooms go into auction and the next minute the market is completely disrupted for the next 18 months.

“That would have an enormous impact on the remaining dealers that have got floor plans, as well as effecting resale values for a long time to come,” said Mr McCall, who added the problem was too large for state governments to fix.

“We wish the VACC well in their endeavours. I’d like to know how a state government could help, but I can’t see it. The problem we’re talking about Australia-wide is a hole of about $4 billion I think,” he said.

Mr McCall said he did not believe rumours that Ford Credit, which along with the likes of Toyota Finance and Nissan Finance bankrolls the floor plans of many of Australia’s 3000 new-car retailers, would join GMAC (which financed 88 Holden dealers) and GE in exiting the Australian automotive finance sector.

“I don’t believe that, because in meetings with government they gave an absolute guarantee they were not pulling out. I find it difficult that they would go in and say that and then say to other people that they will pull out. I find that extraordinary, but stranger things have happened,” he said.

Capital Finance, which remains one of Australia’s three major car industry financiers alongside ANZ subsidiary Esanda and Westpac takeover target St George, said its wholesale finance limit will increase to about $1.4 billion and that around 300 wholesale car dealers will be on its books by the first quarter of 2009.

“There are only three significant sized independent finance companies left in Australia servicing the car dealers of Australia since the GE Money and GMAC announcements,” said Simon Abbott, the assistant general manager of Capital Finance Australia’s Motor & Leisure division.

“I would be surprised if we are now not the second largest independent financier here and still keen to take on new dealers. Last week we had approaches from in excess of 50 dealers seeking wholesale finance and we are likely to process in excess of $300 million in new bailment for these dealers,” he said.

Meantime, one of Australia’s largest automotive retail groups, the Perth-based Automotive Holdings Group (AHG), this week announced it had already concluded a deal to refinance its GE-funded floor plans prior to the company’s October 24 withdrawal announcement – with the newly formed Nissan Finance division from this month.

AHG - which holds 86 car dealerships in four states and New Zealand including Toyota, Holden, Ford, Mitsubishi, Mazda, Hyundai, Nissan, Subaru, Honda, Citroen, Peugeot, Kia, Iveco, Fuso, Hino and Volkswagen franchises - said it has also refinanced its GMAC-funded floor plans via existing financiers including St George, Toyota Finance, Mercedes-Benz Finance, Capital Finance and UDC in New Zealand.

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