LAS VEGAS ‚ÄďThere‚Äôs reason for optimism ‚Äď and saying so isn‚Äôt mere ‚Äúhappy talk,‚ÄĚ 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, ‚Äúwhere it‚Äôs always the driest,‚ÄĚ he says. ‚ÄúWe‚Äôve been there before. The market has recovered and will do so again.‚ÄĚ
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 recovery‚Äôs estimated time of arrival at 12 to 15 months, with the next six months being tough.
‚ÄúWe‚Äôre going through a lot of change, but not a restructuring,‚ÄĚ he says at the F&I Management and Technology‚Äôs annual conference here.
‚ÄúHowever if you think things will get better and you don‚Äôt have to change, the market will punish you,‚ÄĚ he says. ‚ÄúIf the rate of change is greater externally than internally for a company, be prepared for the end.‚ÄĚ
Many firms have reduced operating costs to cope with the down period. That‚Äôs an important step, Borst says. ‚ÄúFocus and strengthen what you do well. Those who‚Äôve made changes will reap rewards. A bad market exposes weakness and strategic-planning mistakes.‚ÄĚ
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.
‚ÄúThe market should be 16.4 million in a strong year, and it will be 14 million-something this year,‚ÄĚ he says. ‚ÄúWhere did those people go? They didn‚Äôt disappear. They‚Äôll be back.‚ÄĚ
With good reason, he says. ‚ÄúMore manufacturers are coming to market with vehicles more in tune with what customers want. It‚Äôs a product-driven business. Demand just doesn‚Äôt go away. We have to give them reason to buy new product.‚ÄĚ
For now though, it‚Äôs 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 Ward‚Äôs forecast.
But, long term, U.S. demographic forecasts are encouraging, Borst says. The nation‚Äôs diverse population is expanding and 4 million people a year are coming of driving age. ‚ÄúBy 2020, the U.S. will add 32 million people,‚ÄĚ he says. ‚ÄúThat‚Äôs like annexing Canada.‚ÄĚ
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.
‚ÄúThere‚Äôs been an overreaction to high fuel prices,‚ÄĚ Borst says.
For now, though, the nation‚Äôs credit woes have hurt dealers and their customers.
‚ÄúAmerica‚Äôs 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,‚ÄĚ 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, ‚Äúit is harder to set up a vehicle loan,‚ÄĚ Borst says.
He adds: ‚ÄúSome people think it‚Äôs only a subprime problem, but that‚Äôs last year‚Äôs news. It has spilled onto prime. It‚Äôs hit all kinds of consumers.
‚ÄúA lot of households are facing real stretches,‚ÄĚ he says. ‚ÄúYou‚Äôll 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.‚ÄĚ
Borst offers ‚Äúone comment‚ÄĚ on the debacle that hit Wall Street. ‚ÄúWhen the whole thing is over, they‚Äôll say it was a failure of risk management. It doesn‚Äôt take a deep-dive analysis.‚ÄĚ