By Joel Achenbach
Washington Post Staff Writer
Tuesday, October 7, 2008
Robert Bassam, used-car magnate, isn't driving his $415,000 Lamborghini these days, or his Porsche, and he has even warehoused his usual get-around-town car, a BMW 750. Instead, he's puttering along in a four-cylinder Hyundai Accent hatchback. It's more politically correct, he says. And economically correct: He doesn't feel like riding in luxury when the economy is tanking.
"Don't you feel it? I feel it in the air -- the negativity!" he says as he walks across the lot of Easterns Select, his dealership near Tysons Corner.
The air is actually rather crisp and sparkling, but in his showroom, and in dealerships across the nation, the mood is gloomy and getting gloomier. The figures for U.S. auto sales in September were stomach-churning. Bassam, a former pizza deliveryman who built Easterns Automotive Group into a regional powerhouse, has been forced to mark his 20th anniversary in the business by closing two of his 16 branches and laying off 60 employees.
Wall Street's problems are being shipped express delivery to Leesburg Pike and every other Main Street in America. It's like a contagion, and it comes in the form of credit, or the lack of it.
Until just a few weeks ago, the crisis had been felt primarily in the boardrooms of Wall Street, that realm of derivatives, credit-default swaps and exotic mortgage-backed securities. Then major banks and investment houses failed, and surviving banks began to become skittish about lending to one another. Now the pain is being felt in the so-called "real economy," the land of jobs, goods, services -- and people buying and selling cars.
New unemployment claims are at a seven-year high, and factory orders are sharply down. State governments are running out of money. Small businesses can't get financing.
Robert Litan, an economist and senior fellow at the Brookings Institution, borrowed a metaphor from investor Warren Buffett and compared the economy to a patient on an operating table.
"Basically, the blood in the person is money -- it's money and credit. You need money and credit to flow, otherwise the patient dies," Litan said.
The clotting of credit hasn't been uniform across the economy from one industry to another, or even among different auto companies and the different makes and models they're trying to sell. It's still quite possible to get a car loan, even with less-than-perfect credit. But the most favorable terms are likely to be associated with the less desirable vehicles. Dealerships are still offering interest-free financing, for example, on certain sport-utility vehicles that haven't budged from car lots since gasoline prices spiked. Leases, meanwhile, have become costlier; in August, Chrysler stopped writing them for new cars.
The availability and terms of a given loan, whether for a house, a car or a credit card, depend on the customer's credit rating. Two years ago, a person with a credit score of 580, on a scale of 350 to 850, could qualify for a conventional 30-year fixed-rate mortgage at 6 percent interest, according to John Ulzheimer, president of consumer education for Credit.com. About 83 percent of consumers with credit scores have a 580 or better, he said.
Now, he said, a person may need a 780, a standard met by only 17 percent of people with credit scores.
Bassam, whose business is famous for TV ads with the slogan "Where your job's your credit," specializes in selling to people with "subprime" and "near-prime" credit scores. In good times, by working the phones with the second-chance credit companies, he could arrange a high-interest loan for someone with a score as low as 450, he said. That's now impossible, no matter how much he and his sales people lobby for their customer. Worse, Bassam said, even customers with good credit scores, well into the "prime-risk" category, are getting turned down by lenders.
The car industry has long been seen as a real-economy bellwether, going back to the old economic truism of "As General Motors goes, so goes the nation." Sales of new cars, trucks and minivans in the United States dropped 27 percent in September from the same month a year earlier. Nissan saw a 36.8 percent drop; Ford, 34.5 percent; and Toyota, 32.3 percent. Auto sales have eroded for 11 consecutive months. And Tammy Darvish, vice president of Darcars Automotive Group, said customers are holding on to their money in part because of what they're seeing in the newspaper and on television.
"It's scaring the heck out of people. We're spooking people," she said. "I think an infusion of confidence can solve a lot of our worries and our problems right now."
Ethan Rossignol, a salesman at Darcars Toyota in Silver Spring, spent last Tuesday night -- the 30th -- waiting for the end-of-the-month bargain hunters to show up. Savvy car buyers know it's a good time to strike a deal and take advantage of monthly incentives. But the dealership was dead. "Low energy" is how Rossignol described it.
The market hasn't crashed by any means, he said, but recent weeks have been tough, and the buyers aren't looking for tricked-out cars anymore.
"People that might have been looking for a loaded, leathered-up, navigation, $32,000 Camry, they're more inclined to buy a $22,000 Camry with cloth interiors," he said.
At Easterns Select, Bassam pointed to a Cadillac Escalade mounted on a platform at the corner of his lot. It was up for auction, and the price was swinging $10,000 in either direction in a matter of weeks -- the market having lost all sense of what a gas guzzler like that might be worth these days.
There was a steady stream of bumper-to-bumper rush-hour traffic heading west on Leesburg Pike, but no one was stopping to look at the Escalade or any other car on the lot. In an hour, only a couple of customers stopped by. Bassam said that in his various dealerships he sold 1,000 cars a month in 2007.
In September, he sold 580.
"There's a stranglehold on people's lives, and it's through the loans," he said.
There are more subtle signs of an economy going downhill, such as people having to give up cars they can no longer afford. Jatinder Sehmi, who owns Montrose Towing Service in Rockville, said he often repossesses cars from people who overindulged during good times and now can't pay their bills. He'll set up an appointment to meet in a parking lot, and often will find the car there, empty, keys inside.
Sometimes the repo work is trickier, involving car owners wielding bats and so forth, Sehmi said. He tells his drivers to avoid confrontation.
He also has trained his people in the art of nabbing a car in less than 10 seconds. Sehmi demonstrated his technique. He hopped in a tow truck, threw it in reverse and sped toward a sad Chevy at rest against a chain-link fence in the rear lot of Montrose Towing. In a flash, the boom went down and slid under the car, two "claws" snagging the front wheels even as Sehmi put the truck back into forward gear and sped off. The entire procedure took four seconds, tops -- it was a bit like watching a frog nail a fly.
What's different these days, Sehmi said, is that he's repossessing more and more high-end cars from leafy neighborhoods.
"People living beyond their means. That's pretty much the story behind all these cars," he said.
He pointed out a nice Mercedes. The guy refinanced his house, felt flush with money, bought the fancy car. Now it's mired in mud in an impound lot.
"A wreckage of someone's life," he said.