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 â€“ called â€˜floor-planâ€™ 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 â€“ 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 â€œunprecedented conditionsâ€, GE Money CEO Mike Cutter said, â€œHome 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.â€
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 â€œapproximately 335 positions will become redundantâ€¦ about 110 of these redundancies will be in four weeks, with the balance occurring over the following yearâ€.
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.