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Auto dealers caught in credit squeeze

By   /   Friday, October 10th, 2008  /   Comments Off on Auto dealers caught in credit squeeze

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Plummeting sales have plagued automobile dealers around the country, and despite a few relative bright spots, the Tri-Counties region is not immune.

Although the extent of the damage isn’t yet clear, the crisis has shown up in Ventura County, which contains 23 of the top 25 dealers in the region in terms of units sold.

“There are two or three franchisees [in Ventura County] that are definitely struggling right now to keep their doors open,” said John Masterson, president of Ventura-based Western Automotive Consultants, which tracks automobile sales in Ventura County.

He declined to say which dealerships. Ventura Volvo closed its doors at the end of August.

Nationwide, vehicles sales in September were down 27 percent from a year earlier September a year ago, according to research firm Autodata. General Motors sales fell 16 percent, Toyota 32 percent, Ford 34 percent and Chrysler 33 percent, according to Autodata.

The sharp downturn has come in the last 60 days or so, Masterson said, and the full depth of the plunge probably won’t become apparent until the end-of-year figures come out. “I don’t have a way to predicting what those numbers will be, but it will be a significant number of retail sales,” Masterson said.

The credit crunch lies at the heart of auto dealers’ dire straights.

The retail auto business comes into direct contact with constricted credit markets in at least two ways. First, most consumers need a loan to buy a new car. Those with poor credit are being turned away, and even those with scores in the 700s are being asked for hefty down payments.

Second, dealers need loans to finance inventories. Under the usual arrangements, the cost of that money goes up the longer cars sit unsold.

Dealers are reluctant to talk about the downturn. Eight contacted by the Business Times either declined to comment or didn’t return repeated phone messages. The dealers who went on the record confirmed that national trends are showing up in the region but didn’t elaborate.

“Things have slowed down quite a bit,” said Tom Maronde, the general manager of Paradise Chevrolet in Ventura. “It’s harder to get people financed because money is tight. The qualifications have become more stringent, plus a lot of people have negative equity in their vehicle.”

But it’s not all doom and gloom among tri-county auto dealers.
“It hasn’t affected us like the rest of the country,” said Shawn Koehler, general manager of Perry Automotive Group in San Luis Obispo, which sells Ford, Lincoln and Mercury models.

Koehler said his sales this year are down by only a dozen or so vehicles.

Koehler said some of San Luis Obispo’s biggest employers – the county, the Diablo Canyon nuclear power plant and California Polytechnic State University – seem to have been less hurt by economic turmoil as other employers.

Koehler said his dealership’s financing – for both customers and his inventory – has remained steady. He works through Ford’s finance arm and has an AAA rating with the firm.

“[Loans for] some of the bad, bad credit people have dried up a bit,” Koehler said. “I think a lot of guys who shot-gunned all their paperwork to the big banks when things were good are having problems. [Ford’s finance arm] gives us good deals, and they’re always there.”

This year’s economic shocks have even produced some benefits, Koehler said. High gas prices over the summer depressed the resale value of gas-guzzling vehicles. Used truck sales have picked up, he said.

“We’re taking these [used] cars so far back off the value from the Blue Book, customers feel they are getting a great deal,” Koehler said

Dealers in Santa Barbara County say they feel the downturn but have found it manageable.

“We’re not down anywhere near what national is,” said Duane Sanders, the general manager of Santa Barbara Auto Group, which deals Porsche, Mercedes, BMW and other high-end vehicles. “We are faring well in relation to other non-luxury makes, and even luxury makes in other areas.”

Sanders said the credit markets aren’t as much of an issue for luxury vehicles – it’s consumer confidence. “We’ve had a pretty sustained period of growth, and this is a little blip, but it will come back,” Sanders said.

“Year to date, sales are down about 11 percent, and the lower traffic on the lot reflects that,” said Farrell Odenthal, sales manager with Santa Barbara Nissan in Goleta.

He said sales closing rates – that is, the number of people who follow through on buying a vehicle after starting the process – have remained constant, at around one in five. In a sign of tight times, consumers are putting off purchasing a new automobile until the last minute, “waiting to buy cars [until] their trade-ins are on their last legs,” Odenthal said.

At the same time, tight credit markets have directed consumers toward smaller, cheaper cars that require less cash for down payment. “A lot more entry-level cars, such as the Nissan Versa and Sentra, are selling to older people, not just college students,” Odenthal said.

At the nationwide level, experts say auto sales probably won’t pick up again until next year, and the situation will probably get worse before it gets better.

“The ongoing financial crisis, rising unemployment and declining household wealth are headwinds that will constrain vehicle sales over the next several months,” Gary Bigg, a Bank of America economist, wrote in a recent analysis. “These developments suggest further payroll declines at the manufacturing plants and at the automobile dealerships.”

How local auto dealers fare over the next few months, Masterson said, will likely depend on consumer confidence, which has been battered by the credit crunch, the federal government’s sometimes erratic and unpopular responses to it, and the wild stock market gyrations that have resulted.

“This does not set a good tone for people wanting to spend money, especially on the second-biggest purchase they will make, after their house,” Masterson said.

• Zac Estrada contributed to this report.

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