Stating The Obvious: No Credit, No Car Sales

Michael Jackson, the CEO of Auto Nation (AN) has been around the car industry for decades. He got started as an auto dealer in 1979 and ran the North American operations of Mercedes-Benz.

Jackson stated the obvious yesterday, but it is an obvious which cannot be stated enough.

According to The Wall Street Journal, Jackson said, In the current situation where loans are hard to get, "it’s like trying to run an airline without jet fuel," he said. "In the auto business, consumer credit is the jet fuel."

That fact makes the current plan to save Detroit a quart low. The program approved by the Bush Administration focuses on cutting costs by twisting the arms of the UAW, creditors, and suppliers. The idea is to bring the cost of running The Big Three way down. There is nothing wrong with the idea, but if vehicle sales in the US keep dropping though 2009 and into 2010, the large cut in expenses won’t make enough of a difference to offset plunging revenue.

If the government really wants to do something for the industry, it will expand the number of people who quality for low-interest car loans. Consumer access to credit is locked up. Financial institutions do not want to lend money to people who will buy an asset which is likely to lose a great deal of its value the minute it leaves a dealership. An auto-loan assistance program with the government backing the difference between a vehicle’s value and value of the loan taken out to pay for it would get financial institutions back into the car lending business overnight. And, dealerships would stop looking like ghost towns.

Douglas A. McIntyre