Time to buy is now

Buyers are in a strong position to save a bundle on a new car, thanks to the changing face of wholesale 'floorplan' financing. Large scale lenders to dealers around the country, GE Money and GMAC late last month announced that they would exit this area of the finance sector. Both companies have been instructed by their debt-ridden parents in the USA to focus on areas that are more lucrative -- and wholesale financing for dealers is not one of those.

That means that many dealers who relied on the two financiers to cover the financial liability of their floor stock are left without the support to purchase vehicles in the first place and have to pay back the finance on the vehicles already in their possession but yet to be sold.

Even dealers with their 'floorplan' shored up will be forced into a price war with those dealers who need to move metal fast.

While the situation is challenging for dealers, the upshot is that time's right if you're a buyer.

David Purchase is the Executive Director of the Victorian Automobile Chamber of Commerce. As the head of one body representing dealers in Victoria, he agrees that retail buyers have probably never had it so good, but balances that against the dealers' concerns.

"An honest assessment of the situation is probably something like this: clearly, it's very tough. It's extremely competitive, margins are paper-thin, there's a glut of cars worldwide... and it is a damned good time to buy a car," Purchase told the Carsales Network.

"What's exacerbating the toughness is the current credit crisis and there are probably three things that are happening," he explains.

"First of all, dealers are doing what they can to help themselves. They're very resilient business people. The second thing is the VACC -- working closely with the FCAI [Federal Chamber of Automotive Manufacturers] -- we're doing everything we can to get more time out of GMAC.

"We've actually formally written to GE and GMAC to ask for six months. We're also making representations to both federal and state governments to impress upon GE and GMAC the importance of giving us more time. It's essential for a couple of reasons. One is so dealers can have that time, to get other finance, but I also think that it's something -- as good corporate citizens -- [GE and GMAC] owe it to the industry and their customers to give them a reasonable period of time.

"It's not as if customers have let them down -- and in some cases, you've got dealers who are customers of these finance companies for many, many years. I had one dealer tell me he's been a customer of GMAC for 40 years.

"To be given -- after 40 years -- 60 days' notice; I don't think that's a good thing to do...

"Thirdly, the government is involved. The Prime Minister and the Treasurer are fully aware of the situation and there is considerable word going on behind closed doors to see if a resolution can be found.

"In the meantime, business continues. Business is tough, [but] it is a great time to buy a vehicle, because there are some terrific deals.

Purchase prefers the VACC and other dealer bodies not seek remedy through legal means, unless there is absolutely no other option available.

"We're certainly not focusing on legal avenues to address this issue and I need to underscore that. We are trying to be very practical and sensible. We're trying to get out there and locate alternative sources of finance. Some of the existing financiers have indicated that they'll help."

If there's a particular upside to this story, the VACC hopes that more financiers attracted to this sector will reduce the single-point sensitivity of being so reliant on just two companies.

"We don't just need another two [financiers] to replace GE and GMAC in my view," says Purchase. "We need more than that, so that in five years' time, we're not facing the same situation."

Purchase expects that the transfer of the eggs from two baskets to many will be an organic process, rather than one inflicted through legislation or regulation.

"You can't create more butcher shops or grocery stores," says Purchase.

"You can't legislate for those sorts of things. This is what we've been saying to government. The very important role they could play is to facilitate a favourable commercial environment, which is attractive to new entries. They could do that in all sorts of ways."

Could the ACCC's role be expanded to encourage broader competition? Purchase doesn't think so.

"The ACCC is a regulator and a policeman. The ACCC's role is to make sure that businesses are not unfair towards others and don't engage in 'unconscionable conduct' -- that's where the ACCC comes in."

Purchase would prefer to see a new business "model" for this kind of wholesale financing -- not the current model, in which the financiers concerned were 'jacks-of-all-trades', with fingers in retail pies as well as wholesale pies (and home loans as well as personal loans and credit cards, in the case of GE Money)

"Governments can facilitate things; they can make it commercially attractive to get into a particular business, but it may well be that if we're going to attract new entrants into this floorplan finance business, that it might need to be done under a different model," he says.

"At the moment, floorplan finance is cross-subsidised with consumer finance and -- in the future -- floorplan finance may have to stand on its own two feet. That might be the only way that you encourage new entrants into the industry. But that may not be the case...

"It may be that new entrants will only come in on a new basis. It's not so much that they say 'yes, we're prepared to do business in this sector, but on these different terms...' and it may be that the industry has to get used to a new form of finance..."

Despite the adverse business environment for dealers, Purchase remains optimistic.

"I've got every confidence that -- difficult though it may be -- we will find a way through this issue."

There's talk around the industry of different financiers filling the gap left by GE and GMAC. Two mentioned by industry sources are Nissan and Daimler's financial arms. One scenario suggested lies in the floorplan financier of one franchise for a multi-franchise dealer assuming the liability for the dealer's non-franchise floor stock also.

But Ford Credit is not one of those companies seeking to expand its existing wholesale finance business. According to Ford Australia President, Marin Burela, the finance arm faces many of the external pressures that have confronted GE and GMAC, but Ford Credit is persevering.

"The good news is we haven't stopped financing," says Burela.

"We're in the game, we're still there... it is very tough; there is no question about that. We're feeling exactly the same pressure that GE and GMAC have felt, but we're still writing paper and we're supporting our dealers.

"I met with the metro dealer body here in Melbourne last week and that's what I said to them. Now we're obviously looking at this on a day-by-day, week-by-week basis, but we are still here and we are doing the right thing by our dealers.

"We're very much sitting tight. You need to survive before you can thrive -- is probably the best way you can put it. I'm satisfied that we're taking the right steps, to keep our sales above water. I've gotta say to you, it's very, very challenging."

Taking a more positive view of what's happening was the Carsales Network's own Managing Director, Greg Roebuck.

Roebuck doesn't lay blame at the door of the two financiers, who have not pulled out of the business stream due to local market problems, but rather as a consequence of their parent companies' financial strife in the US. He was, moreover, upbeat about the situation for dealers; noting that the industry had faced challenges like these in the past and survived.

"It's a resilient industry," he said of the motor trade.

"It's been through tough times before and has always continued to thrive and survive. People still need to buy cars -- and buying through a dealer is still the best way to buy a car," Roebuck opined.

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