When Will The Credit Freeze End?

Many Auto Dealers are hopeful that lenders will loosen up on their restrictions soon and begin making auto loans to their secondary (Sub-Prime) applicants once again. Perhaps they are counting on the $700 Billion Bail Out, or perhaps they have confidence in some of the recent acquisitions made by larger financial institutions.

The hopeful outlook is in stark contrast to the feedback I received from dealers last month after the announcement of HSBC and Triad’s decision to discontinue making loans through auto dealers and focus on other markets. Cindy Savio, spokesperson for HSBC said, “The auto finance business has been under strategic review for some time…Our exit from the business will allow HSBC Finance Corp. to focus on its core businesses – credit cards and mortgage lending.”

Jack Tracey, executive director of the National Automotive Finance Association said, “HSBC’s departure leaves a hole for the dealer community that seeks to finance customers with less-than-perfect credit…That leaves fewer options for dealers in an environment where other lenders who are left are tightening credit.” (source: Automotive News, Aug. 12, 2008)

Many dealers have felt the breeze created by that hole and have had to turn away consumers that they could have easily converted into sales the month before. I noticed a decrease in orders for my bankruptcy mailers which I see as just a ripple-effect of these sub-prime auto lenders pulling out of the auto lending market. Some of my clients have had to actually postpone scheduled mail drops for sub-prime direct mail orders simply because they felt that they would not be able to provide financing for consumers that responded to my aggressive credit offers.

But since HSBC serviced approximately 7,500 auto dealers and Triad serviced about 5,000, when it became public that they informed their dealers that they would no longer provide auto loans, other lenders seized the opportunity and contacted these dealers vowing to fill the sub-prime auto lending hole.

With obvious caution and skepticism, dealers took the wait and see approach and slowly began to submit applications that HSBC and Triad normally would have received. Once they began to see approvals and actually got funded with little or no hassle at all, their confidence began to grow and it is my opinion that this is where their hope is grounded.

I say this to rebut the mass media’s claim that the U.S. automotive industry is severe trouble. I’ll grant that there are many difficulties, but as we saw a major GM dealer close its doors last week we also saw it reopen the next day under new ownership. This is clearly the case of one man’s failure being another man’s opportunity.

Confidence in the U.S. automotive sales industry goes against the media’s scare tactics that are seeping with political overtones (which I’ll not get into here), so it’s no wonder that the general report is one that is “all-bad.” But I am still receiving orders for direct mail, and these orders are substantially larger in volume than they were a few months ago. I believe that I am a good barometer for market conditions because I only exist if auto dealers use my services, and guess what??? They are.

In closing I quote the prolific “Public Enemy” – “Don’t, don’t, don’t believe the hype!”

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