There are shockwaves belting through the Australian new car dealer sector today with the announcement that GMAC Finance and, announced just minutes ago, GE Money, two major suppliers of wholesale finance to the new car sector, are pulling the pin.
For some new car dealers, this news will hit them like a baseball bat.
Many car buyers may not be aware that new car dealerships fund their showroom stock, the new cars they sell, with wholesale finance – called ‘floor-plan’ in the industry. Some dealerships are also heavily-geared to their floor-plan financier for specialised equipment and even new car showrooms and service centres.
For dealers who lose access to this rolling credit, if they cannot find another financier (and that job is made harder if cars are not selling) they will have to either repay the capital amount or close their doors.
The global credit crunch has taken a little longer to reach the dealer sector here than in the US, at the epicentre of the crisis. Over there, dealerships have been dropping like flies. Reuters reports that 2009 may see as many as 3800 US dealerships at risk of closure – totalling nearly one in five - because of dwindling sales and tighter credit.
Regrettably, the spreading devastation has now arrived at the showrooms of Australian new car dealers.
GMAC, which is the finance arm of General Motors US, provided floor-plan to a number of Holden, Subaru and Suzuki dealers. As many as 400 dealers Australia-wide will now be looking for alternative wholesale financiers.
GE Money, however, having bought AGC and having aggressively sought market share in wholesale financing to the sector, has a larger floor-plan footprint. Its announcement that it is to bolt will come as a body blow to many, many dealers.
Other financiers to the sector, St George, Capital, Esanda, Ford Credit, and Toyota Finance among others, may not be willing to step into the breach. More, in fact, may be looking to pull back their finance operations and reduce risk exposure to the sector, unless credit market conditions (miraculously) improve.
There have been persistent rumours that GE Money was getting ready to exit (it has been scaling back and terminating agreements with dealers over the past month and reportedly has Wizard Home Loans ready to go to the NAB). Those plans have now been confirmed.
GE Money will cease offering home loans through third parties (brokers, mortgage managers and other originators except Wizard), motor finance and small business finance in Australia and New Zealand.
Quoting “unprecedented conditions”, GE Money CEO Mike Cutter said, “Home lending and motor finance are capital-intensive businesses and we have had to accept that the returns at present no longer justify the cost of funding those products.”
This, according to GE, is a result of the extreme volatility and greatly increasing cost of funds on the global and local wholesale markets.
GE also announced that “approximately 335 positions will become redundant… about 110 of these redundancies will be in four weeks, with the balance occurring over the following year”.
While GMAC has said it will exercise flexibility, it plans to be out of the market by the end of December, closing the doors on around 185 workers here and in New Zealand.
There are no positives in this news other than it is a great time to buy a car. There will be a lot of dealers out there working like blazes to reduce inventory.
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That right there is HUGE news!
about time financiers act, dealers have had it too good for too long, huge commissions paid by these financiers and no service given to consumers by the dealers, consumers only looked upon as big money makers for dealers, not only in finance but what about the aftermarket mark up…….Now it is the cosumers that should benefit out of all this. Better discount on cars, stock has to go, better rates for consumer to make the stock move and hence a big win for consumer.. I might even enjoy going out and having a bit of fun purchasing a new car and giving the salesman his own medicine back…… Purchase on my terms for a change…..
Granted, you will likely have that opportunity in coming months BUT this isn’t good news at all for the dealers that will be affected, their families, their staff, their staff’s families and the manufacturers…or their employees, and their employee’s families or the manufacturers suppliers etc etc etc.
What is really wrong with all of this is that companies like GE can just cut and run when the $’s are no longer in it for them, leaving a trail of destruction in their wake. They have ridden the gravy train for years and should be prepared to tighten their belts and ride the hard times out with their customers.
There will be plenty of hungry salesman out there, cutting new car prices to the bone - it didn’t require GE to jump ship for that to become a reality.
I think this is a massive blow to the australian economy. There are up to 300 staff members employed by each major dealership in australia. If these yards start dropping, there will be alot of admin, mechanic, sales, car washing, gardening and IT staff without jobs to feed there family.
Yup, GE, GMAC, ‘fair weather friends’ or bastards - take your pick. (I lean to the latter.)
It wasn’t car dealers, or farmers, or teachers, small business owners, mechanics, shop assistants or salesman who cocked up the global economy. (Remind me… who was it again?)
The Insider
we are a motor dealer in rural nsw ,i understand that you feel that the profits are excessive.
however,we employ 42 staff and our margins are about 1%
of turnover which makes business tough even in the good times,if you get enjoyment and pleasure in seeing motor dealers struggle and potentially go out of business ,you should spare a thought for those 42 employees and their families (including children)when they become unemployed.
kind regards
john
GE and GMAC have made business decisions and have to live with those decisions. I read the comments made by a cynical consumer who is obviously ill informed. When you consider that most dealerships only return 1 -5% profit on huge turnover, dealerships aren’t the worlds best investment. Many thousands of working Austraian’s will be negatively effected.In tough times like we have now, some dealers are in the position of having to pay huge floor plan funding back to the “escapee’s” within 70 days. In this tight credit market, some dealers will find this impossible to do and their lives will be dramatically altered because they chose the escaping lenders. Reduced competition means higher prices and less financing flexibility for people like the gentleman with the “small gonads” who posted the comment under “fed up customer”.
Friday was a potential water shed historic day in the retail car trade. I sincerely hope that the GE and GMAC dealers all get refinanced and keep up the competition.
You uneducated thick stupid idiot, the entire economy is affected by how much money people earn out of you and you are indirectly employed by the people that make money out of you whenever you spend it or however you spend it. So go and buy your discounted car but take comfort in knowing your employment is likely to be next so don’t finance it you tool !!!
what sort of moron are tyou, get you head out of your backside and understand the motor industry and how finance both retail and wholesale works;
I hope the salesguys see you coming and stick it up you well and truley; ill informed idiot.
fED UP CUSTOMER IS THE TYPE OF MORON WE ALL HATE COMING INTO OUR DEALERSHIPS. WHAT A COCKROACH
Bloody awful.
Arguably, it was greedy loan-sharks wearing the apparitive disguise of mortgage brokers to the sub-prime market. GE has stood its ground more than any other international financier, and has made their decisions here in order to ensure they remain afloat in the way they are, rather than trying to take dessert while the titanic sinks.
Just wondering how GE & GMAC would fair should a significant amount of dealers be unable to refinance elsewhere?
They could potentially own tens of thousands of cars and or dealerships! wont be easy to realise the cash then would it?
The b ickering over the GE GMAC isues will be devastating for many Australians’- we need some constructive input v v soon to reduce the carnage,,, any idea’s please…..
At the risk of being political ! perhaps messrs Rudd & Swan should earn the electorates respect by taking some real action on this significant issue facing us all… instead of touring the world like rock star’s…..
Concerned … FP/ AAIISS Les Adelaide SA
I just love to read “unprecedented conditions” in this post.Anyone had comments on that?