Credit Crunch Pushes Car Dealers Over The Edge
ARI SHAPIRO, host:
For a sense of what it's like to be a car dealer in the midst of the credit crunch, we go now to suburban Atlanta. The difficulty getting financing and general worries about the economy are keeping many would-be buyers away from the showrooms. NPR's Kathy Lohr reports.
KATHY LOHR: Toyota South in Morrow, Georgia, specializes in getting loans for people with poor credit. But general sales manager Bennett Cox says the weaker economy has further limited options for these customers.
Mr. BENNETT COX (General Sales Manager, Toyota South): We've certainly seen a dramatic falloff in terms of number of cars sold, in terms of the profitability, in terms of challenges in getting people financed and approved through various lenders.
LOHR: This September the dealership just south of Atlanta sold half as many new cars as it did a year ago and substantially fewer used cars. Cox says even consumers who don't have credit problems are nervous about the economy, and they're making tough decision about how to spend their money.
Mr. COX: As people start to tighten their belts and more money has to go towards gas, their vehicles are worth less, the banks are requiring more, it makes it that much more difficult for us to sell the cars.
LOHR: Outside in the lot, rows of shiny new cars sparkle in the sunlight. Gerald Randall(ph) a car salesman here, is waiting to greet customers, but there aren't any to greet.
Mr. GERALD RANDALL (Salesman, Toyota South): Everybody's down 50 percent, you know. Things with the gas going on, people scared to spend money because they don't know what's going on. The little bit of money that they have they want to hold on to it. The car business is definitely being affected heavily right now due to the economy, absolutely.
LOHR: Who's still buying? Primarily folks with older cars that need pricey repairs or those who want to downsize so they can get better gas mileage. But many would-be buyers owe more on existing loans than their cars are worth. And they're now facing lenders who require excellent credit, a down payment, or both. A year ago, that was not the case. There are also fewer lenders. HSBC, an international banking giant, announced in August it would stop writing U.S. car loans because it said the loans had dropped below a sustainable threshold. Other banks are also cutting back. Even large auto dealers have felt the impact. The biggest Chevy retailer in the south, Bill Heard Enterprises, closed 14 dealerships last month and filed for bankruptcy.
Dr. KEN BERNHARDT (Professor of Marketing, Georgia State University): Consumer confidence is almost as low as it's been since they began recording.
LOHR: Ken Bernhardt is a marketing professor at Georgia State University.
Dr. BERNHARDT: The housing market is bad, people are feeling poor, and in many cases are much poorer than they were six months ago. So if consumers, either because of their job situation and their earnings, or because of their perception of what's going on and their confidence in the economy, cut back on spending, that ripples through the whole economy.
LOHR: Many are thinking twice about making the commitment, including Lydia Kincade(ph) who lives in Atlanta. She started looking for a new car about six months ago, and even found one she wanted, but decided she'd better wait.
Ms. LYDIA KINCADE: I don't know where everything is going right now. We're not sure what the interest rates are going to do, what we're going to have coming in, because, you know, we own our business. And so we're dependent on how, you know, if other people have the extra money to spend too. So if they don't, then we don't get it. It was just too scary a prospect.
LOHR: If Congress approves a rescue plan for Wall Street, that could restore some consumer confidence. But car dealers and analysts say sales aren't likely to pick up until after a new president is in the White House. Kathy Lohr, NPR News, Atlanta.