Dealerships avoid car wreck

AT the end of last year, there were dire predictions for car dealerships left stranded as some of the biggest lenders pulled out of the market. The threat has now largely passed, although those forced to refinance are paying a premium.

Andrew McKellar, the chief executive officer of the Federal Chamber of Automotive Industries, said the predicted carnage from the retreat of GE Money and GMAC Finance from wholesale floorplan finance had not occurred.

"The pressures have been less intense than what might have been expected, but that's not to say everyone's out of the woods," Mr McKellar said.

Wholesale floorplan finance makes it possible for dealers to stock a large range of vehicles and ensures a flow of vehicles go from manufacturers to dealers.

A typical medium-size dealer has about 45 days' supply of vehicles, or $3 million in new vehicle inventory, on hand at any given time, while used vehicle inventory is typically at 75-day supply, at an average borrowing of $1 million, according to federal government analysis of the sector.

The pullout of GE Money and GMAC Finance provided the impetus behind the government's Special Purpose Vehicle, or Ozcar, which was set-up to help fund dealerships unable to renegotiate financing.

St George Bank Automotive Finance state manager, Mark Bailey, said the majority of dealers were able to secure new lending agreements without the use of the facility.

"It was a great thing the government did, but it has hardly been used," Mr Bailey said.

John Hughes, of Perth-based John Hughes Group, said he wasn't aware of any dealerships that had folded due to a lack of financing, but he said those that had to refinance were paying more.

John Hughes Group has a 30-year alliance with lender Esanda Finance, and therefore did not need to find another lender.

Floorplan financing generally costs about 200 basis points more than a home loan, although there are large discrepancies.

One smaller dealership that was forced to refinance told WA Business News some dealers were paying up to 4 percentage points more for financing than this time last year; although Reserve Bank rate cuts have offset some of the pain.

"I had some pretty anxious moments there," the dealer representative said. "But I found that if you have a decent balance sheet money isn't that difficult to find. WA dealers were somewhat protected because of the boom conditions leading up to the crisis."

Large Perth-based automotive retailing company, Australian Automotive Holdings, was forced to refinance, but was able to lock-in agreements well before most smaller groups.

AHG replaced GE with Nissan Finance and used its panel of financiers to cover the void left by GMAC.

Floorplan financing hasn't been the only potential headache for car dealers. Customers with a glitch in their credit history are falling short of lenders' more stringent criteria.

"The lenders are calling the tune," Mr Hughes said.

Local new car dealerships are faring better than many of their overseas counterparts, where sales are down by as much as 40 per cent in countries like the US.

Australia-wide new car sales were down by up to 20 per cent, before returning to about 14 per cent, according to the Federal Chamber of Automotive Industries.

The chamber's statistics show that there have been almost 66,000 new car sales in WA this calendar year, compared to 80,400 in the equivalent period last year.

Traditionally, the top end of the market falls furthest in a crisis, and figures show sales of Alfa Romeos, Aston Martins, BMWs, Ferraris, Jaguars and Lamborghinis have also declined this year.

Car dealerships are expecting a late surge in new car sales at the end of the year as the 50 per cent rebate for small businesses comes to an end, which is part of the federal government's stimulus package.