Chrysler's financial troubles have made consumers and lenders more reluctant to invest in Chrysler vehicles and products, but Chrysler's recent federal aid package may buoy confidence in investors and reverse the trend, according to a Small Business Administration report.
"Consumers are hesitant to purchase a car where there is uncertainty whether the manufacturer will survive," said the SBA report mandated by Congress as part of Chrysler's $3.5 billion federal aid package approved in January.
"Indications from Chrysler Corp. and Chrysler dealers is that consumer traffic in the showrooms has increased since the signing of the Chrysler Loan Guaranty law on Jan. 7, 1980. This, coupled with the incentives to purchase Chrysler products now offered by the company, may reverse the trend to lower sales."
A Chrysler spokesman said that since January, the average number of vehicles sold each day has increased. At the end of January, Chrysler began an unprecedented drive to increase traffic in its showrooms by offering 30-day guarantees to customers and other incentives.
"There's been a pretty good improvement since the start of the guarantees," the spokesman said.
Between Jan. 1 and 20, the average number of Chrysler cars sold was 1,773. From Feb. 12 to 20 an average of 2,033 cars were sold daily, and 2,599 were sold each day between March 1 and 20, the spokesman said.
The SBA report said that while all dealers are experiencing sales problems, because of the popularity of gas-saving import cars and the inability of domestic dealers to provide enough of their own gas-saving models, Chrysler's problems are more acute.
In addition to consumer cautiousness, bankers are reluctant to lend money to dealers, the report continued. "Faced with soaring money costs, the uncertainty of inflation and decreased liquidity, it is likely that wholesale and retail financing from financial institutions will become scarcer and obviously more costly."
Chrysler's problems are also burdening its dealers. "SBA has received some indication that Chrysler dealers have not been receiving timely payment from Chrysler for warranty work," the report said. "To the extent that this is true, Chrysler dealers are providing interest-free financing to the manufacturer. Carrying such receivables at high interest cost is an added burden."
In addition, as part of the loan guarantee plan, Chrysler must obtain guaranteed assistance from suppliers and dealers amounting to $180 million. But the report states that "it is uncertain if the Chrysler automobile dealers will be in a position to provide any significant amount of the financing required. Presumably suppliers will be able to furnish the remainder."
As a result of Chrysler's problems, "the average inventory of Chrysler dealers is nearly 60 percent greater than the overall average with the consequent severe financial burden and excessive costs," the report said.
For the auto industry as a whole, the study showed a steady growth in dealerships offering imported cars and a gradual decline in all dealerships. Last year a "substantial" number of dealerships closed and the study noted "a decline in the market share of Ford and Chrysler over the last two years." "