The Australian government is looking to convince banks to set up a temporary lending pool to provide credit to vehicle-financing companies after two of the country’s largest firms, GMAC Financial Services LLC and GE Capital Finance Australasia Pty Ltd., announced they will quit the business by year-end.
Media reports say up to 40% of Australia’s 3,000 new-car dealers could be forced to close due to lack of credit.
Prime Minister Kevin Rudd tells Parliament the Treasury Department has task forces to deal with a whole category of market-linked investments.
He was replying to a question from Opposition Leader Malcolm Turnbull, who complained the A$6.2 billion ($4.2 billion) auto industry aid package failed to address the “critical and immediate” credit issues facing Australia’s car dealers and their 90,000 employees.
Turnbull says about half of all vehicles sold in Australia each year are either leased or financed.
“Car finance companies are experiencing challenges in every Western economy at present,” Rudd is quoted as saying in a government transcript. “This is a global problem affecting the car industry and affecting finance companies associated with the car industry, not just here, but in the U.S. and Germany, as well.”
In a news conference, Rudd says the government is acutely conscious of the difficulty car dealers are having getting financing.
“The Treasury is in continued discussions with many of those companies in terms of providing appropriate ways forward for the future,” he says. “We know auto finance is part of it. I am sure the government will have further to say in the future once our discussions are concluded with the finance company sector.”
The Australian newspaper reports the government has asked Future Fund Chairman David Murray to investigate whether the proposal for banks to set up a temporary lending pool is viable.
The Future Fund was established in 2006 to assist future Australian governments meet the cost of public sector superannuation liabilities by delivering investment returns on contributions to the fund. The purpose of the fund is to meet the government’s future liabilities for the payment of superannuation to retired public servants. The fund’s investment decisions are made at arm’s length from the executive.
The newspaper says the initial proposal being investigated by Murray involves lending to captive finance companies that service only the car industry, such as Ford Credit Australia Ltd. and Toyota Finance Australia Ltd.
Making the funding pool available to other auto industry credit providers has not been ruled out, it reports.
Industry Minister Kim Carr did not directly answer when Liberal Party Deputy Leader Senator Eric Abetz asked in the Senate to confirm that one of Australia’s auto makers had approached the government seeking urgent assistance in obtaining credit for car dealers.
“The government is working with the automotive industry and the banking industry to develop practical solutions to the financial crisis that goes to the issue of dealership stocks,” Carr says. “We are in the process of ensuring that practical solutions are evaluated. But these are matters that go to the broader financial questions facing the economy at large.”
