A package of cash advances is what car dealers need today

Car dealers’ woes

A mega cash advance is something that the car dealers need desperately today; it does not matter whether the government offers it or someone else! While all the discussions are focused on the big two carmakers’ bailout plea, the worsening financial conditions of the neighborhood car dealers, mainly those who deal with single brands, are getting overlooked. With the car industry suffering a major fall in demand, the car dealers are deep in trouble, failing even to recover their fixed costs. And the result, more and more car dealers are forced to down their shutters with every passing day.

Severity of the situation

According to figures available at the National Automobile Dealers Association, as many as 1000 car dealers have closed their operations during 2008 forcing over 50,000 Americans out of work. And the reason is quite obvious; they are facing falling sales on a continuous basis for a very long time now. In 2008 alone, sales figures for many brands dropped by as much as 40%. Even worse for the dealers, these figures are expected to plunge further and reach the lowest in the last 35 years. As a result, playing it safe for the future, car dealers are giving up dealership as a profession.

The real cause

The car dealers are actually facing a double blow at the moment including problems in the non-functioning credit system. First, 94% of the car-buyers get their purchase financed. As there is a dearth of car financing, it becomes difficult for most people to buy a car. Most don’t have enough money out of their own pockets, unless they get a cash advance from some source. The second problem for the dealers is the fact that ‘floorplan’ financing is drying up very fast. Even dealers with good credit rating are finding it really hard to get a loan. Dealers generally need around $5 million of inventory financing, and absence of it has hit them really hard, especially to small dealers like Bob.

Story of Bob Cockerham

Bob Cockerham is a small dealer, who shared his story with the Senate Committee on Small Business and Entrepreneurship on March 19. As per Bob, “Despite the fact that we have never been late on a payment and have stellar credit, our inventory financing lender simply said that they could no longer provide us a loan to cover our entire inventory.” He also added, “Without these loans, my business is done.” And that’s the story of most of the car dealers today.

A quick solution is needed

Currently, the bereaved dealers are in urgent need of cash advances to survive the current crisis. And this actually means they need a system to be worked out immediately so that the dealers at least get access to floorplan financing. President Obama saying that the government is standing at the back as the guarantor for those who buy cars is definitely a welcome one. But, that alone will not help the situation to improve. He must have to “immediately revitalize the asset-backed securities market for wholesale and retail auto loans and expand the Small Business Administration Loan Guaranty Program to provide floorplanning and working capital for auto dealers,” as urged by the trade associations representing 20,000 U.S. franchised auto dealerships. If President Obama does not work out a quick plan to give some cash advances to these neighborhood car dealers, then soon he will find more dealers closing shop creating additional unemployment.