Commentary

In the financing world, an old saw about risk managers is that they’re the ones who take away the booze and the music when the party gets going.

Whether party poopers or economic circumstances or both stopped the fun, well, a lot of auto people now are rubbing their temples.

Going way back, excess gets people into trouble. It gave the Bible some great material. Did we think this go-around would be the exception? The six most dangerous words on Wall Street are: “This time it will be different.”

A high-octane blend of excess fueled the auto industry, driving it darn near off a cliff.

Auto makers created excess capacity, prompting them to force cars on dealers, causing bloated inventories and creating a push market.

That worked, kind of, until the endless summer of easy financing gave way to frozen credit. Until that ice age arrived, without so much as a weather warning, lenders gleefully gave loans to consumers who bought cars they really couldn’t afford.

“There was a feeding frenzy for transactions,” Mike Kane, senior vice president-client services for CitiFinancial Auto, says at a recent Auto Finance Summit. “Wall Street was saying, ‘Give us more loans, we’ll bundle them up and sell them to investors.’”

But, he says, “when you have millions, not thousands, of loans out there, you don’t have enough people to call customers and say, ‘Hey, you know how we financed that Ford F-150 pickup that you wanted last year? How about paying us back?’”

Now lenders have become tightfisted. It’s playing with a lot of auto dealers’ minds.

“I used to wake up in the morning and know what a deal was,” says Scott Vickery, finance director at Cardinaleway Mazda in Mesa, AZ. “Now, I don’t know.”

That’s because he doesn’t know what lender, or if any lender, will finance a particular deal. Dealers across the country face the same woes in today’s toxic economic environment.

“Manufacturers want to stick us with as much inventory as they can, because they built it,” Vickery says. “Then we have to worry about the capital to pay for it.

“Then once we do get customers, they are skeptical about spending their money, if they have any left. Then the finance companies are reluctant to lend.”

What a perfect mess.

It’s almost a feat that any cars were sold in 2008, let alone 3 million fewer than 2007. There’s a Latin term that applies to 2008: Annus horribilis. Translation: “Horrible year.”

Not that 2009 is expected to be a hootenanny. But let’s look at the positives. Some good things are upon us.

One, the government finally stepped in, not only to help General Motors and Chrysler, but also GMAC. What’s the point of making cars if there is no way to finance the selling of them? If it didn’t help GMAC, too, the government would have been wasting its money on the auto makers.

Two, the art of the structured deal is back. That ends 100% financing, let alone 110% financing to also cover add-ons. Customers now must cough up a down payment. The goal is to put the right customer in the right car, one that doesn’t exceed the limits of personal budgets. Otherwise, no deal.

Three, tighter credit gives dealers the iron-clad excuse for resisting auto makers’ efforts to push unwanted product on them: “I can’t afford it.” Serious inventory management has arrived. Finally.

Four, auto makers slowly but surely are making real efforts to cut capacity. Even in the boon years of this decade (and there were six years with vehicle sales of 16.9 million units and higher), total capacity far outpaced demand. Something had to give. And did.

So let’s sweep up and fix the holes in the walls. The rowdy party is over. But that doesn’t mean the funeral is next.

sfinlay@wardsauto.com