Jalopnik: financial crisis

Seven Ways The Financial Crisis Will Affect Car Buyers

Matt Hardigree — Mon, 06 Oct 2008 14:00:00 EDT

The most cliched phrase so far during this financial crisis has been "what happens on Wall Street affects Main Street," and nowhere is this truer than for that large car dealership located on Main Street, which will have to adapt to the new market in ways that will seriously impact car buyers. While not all of the changes are positive for consumers, the tough position dealerships find themselves in will make an already buyer-friendly market more so in the coming months. Below is our look at seven ways car buyers will be impacted.

7. More Incentives

Insecurity in the market will lead to fewer people buying new cars than before. It is no surprise that when car sales drop, incentives increase. GM just ran a long "employee pricing" deal, leading to a sales drop that wasn't as bad as expected, meaning that other automakers may follow suit. We've even seen dealerships running their own employee pricing deals on top of automaker offers. This is especially significant for truck buyers, who may see "owner loyalty" and "special overstock" pricing deals. Make sure to inquire about all available incentives if you're shopping for a car.

6. Fewer Dealerships

Most dealerships don't purchase cars directly from the automaker but rather finance their "floor plan" through a lender. The dealership then pays interest on that car loan until the car is sold. If a dealership can no longer secure a loan for their floor plan, they're no longer able to operate. This is one of the reasons why dealerships are going out of business. Typically, less competition is bad for buyers. In this case, the market is in such bad shape that the biggest impact will likely be for individuals who have long-standing relationships with dealerships.

5. Lower Financing Costs

For the first time in years Toyota is offering 0% financing on 11 of their models, a sign that the company wants to move inventory. With the exception of super-premium automakers like Ferrari and Maserati, who aren't typically impacted by these market fluctuations, most carmakers rely on selling a large volume of cars and will offer discount financing as a way to get through tough times. If you have good-to-exceptional credit then you may be able to get a great interest rate on a new car loan.

4. Less Easy Credit

While buyers with a solid credit history may get a great deal on a new car loan, those with limited credit histories or average-to-bad credit may not be able to get a loan at all or may have to offer up more proof of their creditworthiness, as banks are taking a greater interest in those who are asking for loans. A finance manager at a dealership in New Hampshire told the local paper that "They're looking at things they never used to look at. We work very hard to get approvals . . . what used to take me nearly two hours maybe will take me two days." Buyers should also expect to spend more time securing a loan than before.

3. More Fuel Efficient Models

When Heard Enterprises closed up shop they blamed their high inventory of trucks and SUVs. Look for more fuel efficient versions of vehicles and smaller cars to take up more space in showrooms. Those looking for fuel-sippers will no longer have to walk to the back of the lot to find something that gets good economy.

2. Less Model Variety

With truck and SUV sales falling it is no longer profitable for most dealers to keep a large variety of those vehicles on the lot when they could have more fuel-efficient models. Those looking for a specific color of truck or a special model sports car may have to look harder and drive further for them. This will become an even larger issue this fall when the 2009 models start arriving at dealerships. [Photo by Justin Sullivan/Getty Images]

1. Better & Worse Dealership Service

Dealerships will have to decide whether they want to attempt to make cuts in the service departments in order to lower their bottom line or increase customer service in order to retain a larger share of the dwindling new car buyer pool. It isn't clear yet which approach is winning out, though some dealerships have been hiring top employees from recently closed dealerships, a hopeful sign that they may be choosing better service. [Photo by Andreas Rentz/Getty Images]

Conclusion

There's no doubt that consumers with strong credit histories or the cash to buy a new car are going to make a killing. With the floor plan system, new car dealers are paying interest on every car that sits on their lot, giving them a major incentive to find a way to make a sale. On the other hand, fewer dealerships and harder-to-come-by credit will mean new difficulties for car buyers.

[Top Photo by Justin Sullivan/Getty Images]

Sky Falls, Takes Auto Stocks With It

Andrew Stoy — Tue, 30 Sep 2008 09:30:00 EDT

Automaker stock values plummeted along with the Dow yesterday, with most closing down at least seven percent, reports Automotive News. General Motors dropped $1.25 to $8.51, while Ford dropped 64 cents to close at $4.17. Suppliers were hit equally hard, while dealership groups like AutoNation and Penske saw declines from 3-13%. So, is now just a really good time to buy? Depends on the gambler in you. If it were our money (and it won't be), we'd send a little toward Dearborn simply based on the product we know is in the pipeline. [Automotive News (sub. req.); Photo Credit: Thelightisgreen.com]

Government May Delay $25 Billion For Automakers Until Mid-2010

Andrew Stoy — Fri, 26 Sep 2008 15:30:00 EDT

Apparently the Department of Energy is really slow when it comes to writing checks, as the Detroit News now reports that Detroit automakers may not get their recently approved loan packages until mid-way through 2010. DOE spokesperson Healy Baumgardner said "there are a number of legal and administrative requirements with which the Department must comply, such as the National Environmental Policy Act, we anticipate it could take at least 6 to 18 months or more, after necessary funds are appropriated." Which, of course, is a bureaucratic way of saying "red tape." Not surprisingly, the news didn't sit well with Michigan lawmakers and representatives from the Detroit Three, who had been laboring under the impression that checks would be cut as early as January 2009.

US Representative John Dingell of Dearborn, chairman of the House Energy and Commerce Committee, said, "It appears that DOE is making excuses for its own anticipated failures. If DOE is asking for vigorous oversight to ensure it performs its duties, we will be happy to oblige." Snap!

As it turns out, though, Dingell has a basis for frustration. The Detroit News also reports that the loan program was authorized in the Energy Act passed in December 2007, but the Energy Department didn't begin writing the regulations until late August. Additionally, DOE has yet to provide any funds for a $2 billion advanced energy program approved in 2005, despite picking 26 finalists almost a year ago. Your government at work, folks: Filling out forms in triplicate while automakers wait for funding that's already been approved. [Detroit News; Photo Credit: AP]