The U.S. is galloping toward a recession spurred by the coronavirus outbreak. But this time, dealers say automaker and captive lender partners have responded to the financial crisis much quicker than they did to the last one.
Dealer impact from the pandemic, according to auto finance experts, appears to be a combination of the upending catastrophe of 9/11 and the financial devastation of the Great Recession. In response, captive lenders and auto-heavy banks have quickly mobilized to stave off the growing risk that retailers and their customers may have trouble paying their bills in the coming months.
Lenders last week extended payment relief and payment deferment offers to entice customers who might have postponed a purchase because of financial insecurity.
Some lenders will temporarily waive curtailments, the principal a dealer owes to pay down older inventory financed through the lender. Banks such as Capital One and Ally Financial have taken a different approach, encouraging dealers to reach out individually to discuss options, though some also offer similar payment deferrals for auto customers.
Liza Borches, CEO of Carter Myers Automotive in Charlottesville, Va., said the manufacturers’ rapid response is something dealers haven’t seen since 2008.
“It’s a bolder response in that we haven’t had a clear, one-day event like 9/11,” Borches said. “I appreciate so much that our manufacturers and captive lenders are stepping up and making these concessions. I just don’t know if we have an ability yet to say, ‘Is this enough? Is this going to get us through?’ ”
Richard Palaikis, an analyst with Cox Automotive Rates & Incentives, said Ford’s previous relief responses to disasters proved critical to dealers maintaining sales in the past.
Palaikis worked at Bill Brown Ford in Livonia, Mich., for about 20 years before joining Cox in 2016.”Within days of the markets reopening after 9/11, Ford launched 0 percent APR for 60/72 months for the first time ever. October 2001 was one of the biggest months for Ford at that time, and it carried us through the rest of that calendar year,” Palaikis said in a statement emailed to Automotive News.
Ford is taking a more dramatic incentive approach during the pandemic — swallowing six months of payments from new customers when they finance through its captive. In this latest action, Ford said last week that it would cover three months’ worth of payments and let buyers defer an additional three months on all-new 2019 and 2020 model-year vehicles except 2020 Super Duty pickups.
General Motors is offering 0 percent interest on 84-month loans and 120-day deferred payments on new-vehicle purchases for customers in the top credit tiers, a spokesman said. It also is providing complimentary OnStar crisis-assist services for Chevrolet, Buick, GMC and Cadillac owners, plus 3GB of data.
Borches said deals such as this are crucial when it comes to reaching out to customers who may be in the market.
“Everyone’s stepping up. General Motors and GMF have stepped up,” said Chevrolet dealer David Vara, general manager of a single-point operation in San Antonio. “They’re obviously helping, but right now you have a lot of people really scared to come into our store.”
Lenders lowering floorplanning expenses will alleviate some cost concerns for dealers as stores nationwide struggle to adjust to slower vehicle sales. Yet, rates were likely slated to drop in light of the Federal Reserve slashing the benchmark interest rate to a range of 0 to 0.25 percent.
Mike Buckingham, senior director of automotive finance at J.D. Power, said fear is tightening the credit markets and though the Fed rate dropped, auto loan rates are unlikely to go down.
Floorplanning rates, in contrast, are in positive territory, Buckingham said. Floorplan relief is more of a goodwill gesture from automaker captives and banks, he said, adding that customer incentives are far more important for dealers right now.
“We went from 9/11, where it’s really a catastrophe, to the Great Recession, which was just so slow to unfold,” Buckingham said. “Helping with floorplanning costs is good, but that’s minor in comparison to sales. Every business will spend a ton of money for what’s happened right here.”
Hannah Lutz contributed to this report.