LAS VEGAS âThereâs reason for optimism â and saying so isnât mere âhappy talk,â George Borst, CEO ofFinancial Services, says, looking past the current economic woes.
The auto industry, with a history of profitable ups and painful downs, currently is in the bottom of a cycle, âwhere itâs always the driest,â he says. âWeâve been there before. The market has recovered and will do so again.â
But not as quickly as he first thought. Borst says that six months ago he figured the worst would be over by now. He currently pegs the recoveryâs estimated time of arrival at 12 to 15 months, with the next six months being tough.
âWeâre going through a lot of change, but not a restructuring,â he says at the F&I Management and Technologyâs annual conference here.
âHowever if you think things will get better and you donât have to change, the market will punish you,â he says. âIf the rate of change is greater externally than internally for a company, be prepared for the end.â
Many firms have reduced operating costs to cope with the down period. Thatâs an important step, Borst says. âFocus and strengthen what you do well. Those whoâve made changes will reap rewards. A bad market exposes weakness and strategic-planning mistakes.â
Several industry forecasts estimate 2008 light-vehicle sales will be 2 million less than 2007. The silver lining is that creates a pent-up demand, Borst says.
âThe market should be 16.4 million in a strong year, and it will be 14 million-something this year,â he says. âWhere did those people go? They didnât disappear. Theyâll be back.â
With good reason, he says. âMore manufacturers are coming to market with vehicles more in tune with what customers want. Itâs a product-driven business. Demand just doesnât go away. We have to give them reason to buy new product.â
For now though, itâs a tough sale. September light-vehicle deliveries (including fleet sales) are expected to be 1.05 million units, a 16.5% decrease from the same time year-ago, according to a Wardâs forecast.
But, long term, U.S. demographic forecasts are encouraging, Borst says. The nationâs diverse population is expanding and 4 million people a year are coming of driving age. âBy 2020, the U.S. will add 32 million people,â he says. âThatâs like annexing Canada.â
He predicts greater loan funding will return, credit losses will lessen, the used-car market will rebound, and demand for fullsize pickup trucks and SUVs will bounce back somewhat.
âThereâs been an overreaction to high fuel prices,â Borst says.
For now, though, the nationâs credit woes have hurt dealers and their customers.
âAmericaâs financial liquidity crisis, created by mortgage lending, is constraining the availability of auto credit, which is the lifeblood of both dealerships at the wholesale level and car buyers at the retail level,â says Annette Sykora, chairman of the National Automobile Dealers Assn.
is meeting with bank and financial-services representatives to pitch the soundness of the existing auto-finance model and urge them to make money available for auto loans.
With fewer lenders and tighter credit, âit is harder to set up a vehicle loan,â Borst says.
He adds: âSome people think itâs only a subprime problem, but thatâs last yearâs news. It has spilled onto prime. Itâs hit all kinds of consumers.
âA lot of households are facing real stretches,â he says. âYouâll find a major deterioration of FICO (Fair and Isaacson Co.) credit scores for people who now have car loans that were obtained at prime rates.â
Borst offers âone commentâ on the debacle that hit Wall Street. âWhen the whole thing is over, theyâll say it was a failure of risk management. It doesnât take a deep-dive analysis.â