Car Industry On The Brink

The Age

Thursday November 20, 2008

KATHARINE MURPHY, CANBERRA and GEOFF STRONG, With RICHARD BLACKBURN, AGENCIES

MASS job losses are looming in the Australian car industry, with manufacturers forced to slash production and dealerships closing amid spreading fallout from the global financial crisis.

On the day that America's giant car makers pleaded for a multibillion-dollar lifeline from Washington to avert collapse, the Rudd Government was told that the local industry was also in desperate need of aid.

The Federal Chamber of Automotive Industries warned of "empty dealerships and closed factories" across the country unless the Government acted "this week".

The warning came as figures showed new car sales plunged by almost 11% in the past year, and after Holden said it would shut down manufacturing for an extra 25 days in coming months due to falling sales.

But a more immediate problem centres on the nation's car dealerships, many of which are in strife due to the freezing of international credit markets.

At least two dealerships in regional Victoria have closed in the past month due to problems obtaining credit. The latest was Peterson Motor Group in Ballarat, which closed on Monday, leaving 15 people out of work.

Liquidator Bruno Secatore of Cordis Accountants said the dealership failed because its financier, Mercedes-Benz Finance, had pulled the plug.

The credit problem has been exacerbated by two of the largest providers, GE Money and GMAC Finance, recently pulling out of Australia. There are also fears that Ford Credit will cease operations, which would leave about half the nation's Ford dealers without a financier.

The finance companies are crucial because they own the cars in showrooms. The finance companies buy the cars from the makers or importers and provide a selection of them to dealers, who in turn pay interest while the cars remain unsold.

Victorian Automotive Chamber of Commerce chief David Purchase said up to 60 of Victoria's 400 new car dealers were having trouble getting finance, although he believed no more were on the brink of collapse.

James McCall, of the NSW Motor Traders Association, disagreed, saying up to 40% of dealers were at risk, and that some could go to the wall within a fortnight in the absence of a rescue package.

On top of the credit problems, car dealers are facing intense competition and tight margins. "I have heard of some Ford dealers selling new Falcons for $80 less than they cost them," Mr Purchase said. "They are hoping to make it up later in service and part sales.""

The manufacturers are also slashing their margins in a bid to move unsold cars. Ford has been selling at fleet prices to clear a backlog stretching back to August, Holden has been offering incentives of up to $10,000 to dealers to sell Commodores, and Toyota is offering cheap deals to clear a stockpile of 40,000 vehicles.

But with 300 to 400 dealers across Australia struggling to find finance for their showroom stock, the incentives are unlikely to stimulate sales.

The collapse of some country dealers has meant new cars are being sold at auction - a development that Mark Thorne, of Pickles Auctions of Sunshine, believes is unprecedented.

The crisis is adding to pressure for the Federal Government to step in with a new rescue package for the industry - weeks after it announced a multibillion-dollar package for developing environment-friendly cars. Federal Industry Minister Kim Carr returned to Australia last night after talks with Toyota executives in Japan, as speculation grew of a new bail-out package within days.

Future Fund chairman David Murray recommended this week that cash-strapped car dealers get access to a new pool of government-guaranteed funds.

Andrew McKellar, of the Federal Chamber of Automotive Industries, said action was needed now.

"Otherwise the Government will be touring empty dealerships and closed factories," he said.

"It's great to have a medium to long-term policy established, but there is an immediate bushfire burning through the industry and we don't want to see big brands and local manufacturers suffer long-term damage."

Figures from the Australian Bureau of Statistics yesterday revealed a 10.6% annual drop in car sales, with four-wheel-drives down 20% in the year. Sales of passenger vehicles were also soft, down 1.5% for October.

Economists expect consumers to remain shy of large purchases due to worries about job security and the economy in general. "Not only are overall car sales trending lower but sales of more high performance four-wheel drive vehicles are taking a hit," said Commsec analyst Savanth Sebastian.

In Washington, the heads of the big three American car makers - General Motors, Ford and Chrysler - yesterday pleaded for emergency US Government aid to stave off potential collapse, offering to cut their own salaries in exchange for financial help.

But after four hours of testimony before the US Senate, it appeared they had not persuaded enough politicians to move quickly on a bail-out.

The frantic bid from Detroit for help was laid bare at a packed hearing of the Senate banking committee, in which two of the three car makers said they might run out of money by the end of the year.

The cause of their misfortunes was not management mistakes, they said, but a weak economy and the inability of consumers to obtain credit.

A collapse of Ford or General Motors would have significant knock-on effects around the world, including in Australia. -- With RICHARD BLACKBURN, AGENCIES

© 2008 The Age

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