AGR-1
Sep 22nd, 2008, 07:59 AM
Cars run on money and credit, not gas
KEITH CRAIN
AUTOMOTIVE NEWS
SEPTEMBER 22, 2008 - 12:01 AM ET
The sky may be falling at Wall Street firms, and the repercussions in the automobile business could be mighty.
Many suppliers need credit to finance their work in progress. They need cash to run their businesses. It just got tougher and more expensive for them to borrow money, and they'll have to raise their prices.
Just about every dealer in the nation uses borrowed money to floorplan vehicles. Without a reasonable rate for floorplanning inventory, the factories will sell fewer cars and trucks, and consumers will pay more for vehicles.
Consumers lease and buy millions of cars and trucks. They depend on borrowed money. When credit dries up or borrowing becomes more expensive, they will be out of the market. Leasing disappears without a lot of capital from somewhere. And leasing has disappeared for a lot of dealers.
Wall Street does matter. The automobile business runs on credit, and already you hear a bunch of folks singing the blues.
It will be interesting to see whether Congress is more or less likely to approve $25 billion in low-interest loans to the automobile industry. Chances are that the recent financial disasters will make it a lot more difficult for automobile companies, both vehicle manufacturers and suppliers, to get the money.
Meanwhile, automakers, suppliers and dealers are scrambling for cash. A lot of credit sources have disappeared. The rest seem to be gun-shy, and well they should be.
One of the most important factors in the growth of the auto business was the establishment of large credit companies as subsidiaries of the Detroit 3. The creation of GMAC was a critical part of Alfred Sloan's plan to expand General Motors back in 1919, making credit available for dealer floorplanning and installment sales to consumers. Ford and Chrysler followed. The credit companies are important profit centers as well as an essential part of marketing.
When a new auto company establishes roots in the United States, one of the first things it does is establish a credit subsidiary for its dealers.
The auto industry needs the free-flowing availability of credit. Let's hope that the federal government doesn't do anything to impede that.
KEITH CRAIN
AUTOMOTIVE NEWS
SEPTEMBER 22, 2008 - 12:01 AM ET
The sky may be falling at Wall Street firms, and the repercussions in the automobile business could be mighty.
Many suppliers need credit to finance their work in progress. They need cash to run their businesses. It just got tougher and more expensive for them to borrow money, and they'll have to raise their prices.
Just about every dealer in the nation uses borrowed money to floorplan vehicles. Without a reasonable rate for floorplanning inventory, the factories will sell fewer cars and trucks, and consumers will pay more for vehicles.
Consumers lease and buy millions of cars and trucks. They depend on borrowed money. When credit dries up or borrowing becomes more expensive, they will be out of the market. Leasing disappears without a lot of capital from somewhere. And leasing has disappeared for a lot of dealers.
Wall Street does matter. The automobile business runs on credit, and already you hear a bunch of folks singing the blues.
It will be interesting to see whether Congress is more or less likely to approve $25 billion in low-interest loans to the automobile industry. Chances are that the recent financial disasters will make it a lot more difficult for automobile companies, both vehicle manufacturers and suppliers, to get the money.
Meanwhile, automakers, suppliers and dealers are scrambling for cash. A lot of credit sources have disappeared. The rest seem to be gun-shy, and well they should be.
One of the most important factors in the growth of the auto business was the establishment of large credit companies as subsidiaries of the Detroit 3. The creation of GMAC was a critical part of Alfred Sloan's plan to expand General Motors back in 1919, making credit available for dealer floorplanning and installment sales to consumers. Ford and Chrysler followed. The credit companies are important profit centers as well as an essential part of marketing.
When a new auto company establishes roots in the United States, one of the first things it does is establish a credit subsidiary for its dealers.
The auto industry needs the free-flowing availability of credit. Let's hope that the federal government doesn't do anything to impede that.