Buyers Are on the Auto Lot, but the Financing Is Not

By Warren Brown
Sunday, May 10, 2009

The banks need to loosen up. That's the message from a month's worth of interviews with consumers and automobile dealers nationwide. It's also the conclusion of a new study by Accenture, a global management consulting company.

The banks need to be less stingy with credit. That would do as much to help the struggling automobile industry as the latest government bailout.

Tight credit is strangling the industry, putting automobile suppliers, dealers and consumers at risk.

"We have people coming into our showroom," said Frank Maione, owner of the Henderson Hyundai Superstore in Nevada. "We have customers," he said, challenging my claim in recent Car Culture columns that "consumers are on strike."

It's not so much that consumers are on strike as it is that many of them are striking out on their applications for consumer credit, Maione said in a recent interview.

"It's screwing up our write-to-roll ratio," Maione said, using industry parlance to describe the difference between writing a sales contract and getting it financed, allowing the customer to roll the car off the lot.

"Half of the people who sign contracts with us can't get them financed; or, they can't get the financing for the car they came in to buy," Maione said. "It's a killer."

I heard the same complaint in Warren, Mich., and in the Washington metropolitan area, where, contrary to conventional media wisdom, people continue to visit automobile showrooms in large numbers, despite the dismal economy.

That includes showrooms supplied by Chrysler, which is reorganizing its operations under the protection of a federal bankruptcy court in New York.

"We're open. We're doing business," said Tamara Darvish, vice president of Silver Spring-based Darcars, which operates 18 stores in the Washington metropolitan area. Darcars handles products from 34 automobile manufacturers, including Chrysler and General Motors.

The Darcars Chrysler showroom in Silver Spring last Sunday was filled with consumers, many of them in search of steep discounts on products sold by the troubled automobile manufacturer. And there were discounts aplenty, with consumer rebates from $1,000 to $3,500, or zero-to-5.9-percent financing on models such as the full-size Chrysler 300 sedan.

But even with those price breaks, it's likely that 64 percent of the people shopping at Darcars Chrysler that day will encounter credit trouble, said Richard Spitzer, managing director of Accenture's division for automotive and industrial equipment.

Accenture has done two online surveys of 504 automotive consumers in the United States -- the first conducted in October 2008 and the most recent conducted in April of this year. The surveys found that more than half of the respondents -- 64 percent, to be precise -- ran into credit problems buying a car.

For 34 percent, those credit difficulties meant no new-car purchase. For 30 percent, weakened credit meant rolling off the sales lot in something less than the dream machine they intended to buy, according to the Accenture survey.

"The troubled economy is taking its toll on consumers," sidelining many who have lost jobs or who are worried about becoming unemployed, Spitzer said. But many more consumers remain in the marketplace actively shopping for new cars and trucks. If the banks ease up on credit restrictions, those shoppers could spark a recovery in automobile sales, Spitzer said.

Spitzer's argument, supported by many dealers, is that thawed credit would build consumer confidence. Increased consumer confidence would work with pent-up consumer demand to build sales.

Motorists in the United States are now holding onto their cars 9.4 years, up from 9.2 years in 2006, 8.3 in 2000 and 7.9 in 1996, according to figures compiled by Michigan-based R.L. Polk, a global automotive marketing research firm.

The pent-up demand, and possible deliverance for the beleaguered car companies, is in those numbers, Spitzer said. "There are people out there who want to buy. There are discounts. There is all of that pent-up demand from people who need to, or who want to replace their existing vehicles," he said.

A credit thaw right about now would be a very good thing.

But, on another note, more favorable credit would not necessarily boost the sales of more fuel-efficient cars. The Accenture survey supports the conventional wisdom that consumers in America have short memories. They seem to have forgotten the gasoline prices of the summer of 2008, when it seemed that we were moving toward $5 a gallon for regular unleaded.

With prices now around $2 a gallon for regular unleaded, dealers nationwide have been reporting decreased demand for fuel-efficient cars and increased demand for trucks and larger automobiles. The Accenture survey buttresses those anecdotal retail reports.

Although fuel-efficiency remains the top reason for selecting a new vehicle, it has declined in importance among survey respondents. Thirty-eight percent of the people in Accenture's April 2009 survey cited fuel-economy as a determinant in their purchase decision, compared with 51 percent who cited fuel economy in 2008.

Perhaps that means a credit thaw and a continued freeze on federal fuel taxes and other fuel prices would be the perfect combination to get the automobile industry moving again.

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