Car dealers bailed out with $2bn safety net
December 6, 2008 by George Skentzos
In the wake of plummeting new car sales and increased pressure on dealerships, the Australian Government has announced a $2 billion safety net to prevent the financial collapse of the car sales industry.
Car dealers facing financial crisis will now be underwritten by a Government debt guarantee, amid the withdrawal of two major financiers.
The ‘Special Purpose Vehicle’ (SPV) plan announced by Treasurer Mr Wayne Swan, with support from leading Australian banks, will provide liquidity to car dealer financiers and the dealer sector.
The peak automotive industry body in Victoria, the VACC, has welcomed the break-through in the Australian car dealer finance crisis.
“Today’s outcome is a creative solution to the problem, and the Federal Government and banks involved are to be commended.”
“The SPV, with the support of ANZ, Commonwealth Bank, NAB and Westpac, and with technical support to be provided by Credit Swisse, will allow viable dealerships who were affected by the withdrawal of GE and GMAC, to keep trading.”
The Government guarantee for car industry financing is not without penalty howver, a fee paid by dealers will ultimately be passed on to new car buyers.
This is not the first time the Government has had to intervene in order to keep the Australian car industry afloat in recent times, having offered a $6.2 billion lifeline to invest in cleaner cars.
The new scheme will be up and running by the January 1, 2009.
Print it: 
So far, the Rudd govt is getting things pretty right in the Global meltdown.
Here is another example of the right thing to do.
Some rare commodores in the picture.
KRudd obviously realises how important the Automotive industry [Ford and Holden] is to Australia and the economy…. which is more than I can say for a number of others on this site..
Whilst in the US a survey shows that 60% of Americans are against the proposed bailout of their Automotive Industry.
Now get out there and buy some cars people. Lets get the economy moving again.
“The Government guarantee for car industry financing is not without penalty however, a fee paid by dealers will ultimately be passed on to new car buyers”.
^ If any fees get passed onto customers who do not require finance to purchase, then I won’t be buying a new car, Mr. Salesman.
If you dealers need more money to buy stock then I believe your process needs a re-think. Like we discussed in an earlier blog, these killer looking showrooms are just a load of cost. Slow moving stock is a sunk cost. Change the model. Remove the associated selling costs, sell cars cheaper, buy online, build Aussie cars Just in Time. Why have loads of cars sitting as stock? Crazy.
If individual dealerships cannot be competitive, and return efficient economies of scale without artificial stimulus (ie Government handout) – then they should not be open. Whilst Rudd has done the right thing to prevent open-slather melt-down and job losses, car dealerships need to refine and amalgamate. Australia physically does not need 250,000 new cars each year – we still have plenty of good used ones driving around. Car marketers and vendors need to think long and hard about that fact, and how that will affect their future operations.
Perhaps the fee could be absorbed into the delivery charge. Without changeing the delivery charge, I mean.
JEYKL & HYDE
Is spot on the money. It is very difficult to “guess” what stock you will need. Customers demand to be able to take immidiate delivery. If Greenroom we move to a internet type service it will be more like order now with no test drive, 50% deposit and we will call you in three months. And forget about trading, sell it yourself before or after picking up your new car.
Grammar Nazi,
you also have little understanding of the industry and the proposed plan. The govt plan is merely replacing an existing financing method that has been used for 80 years. When the manufacturer delivers the stock to the dealer they expect to be paid for it straight away, not 30,60 or 90 days later, so they often (not always) invoice the Floorplan company who pays for the vehicle. The dealers pays them for the vehicle when it is sold plus an interest charge. The proposed plan replaces the floorplan products that were withdrawn from the market by GE and GMAC.
As for selling cars online and building just in time… cars arent pizzas and hamburgers… sometimes customers like to actually look at the car, drive it and compare it to another, and then when they make their decision, sometimes drive away in it not order off a menu and wait… although home delivery in 30 mins or its free sounds appealing.
Grammar Nazi
Australia has one of the fastest growing and most diverse populations in the world. Our government spends billions on Infustructure. I would find it hard to believe the Australian government would not write a check for 2 Billion dollars on a lost cause.
Grammar Nazi -
“Australia physically does not need 250,000 new cars each year”
Well considering that we’ve sold over 10 times that amount in the last 3 years, I think maybe Australia does.
And Greenroom, they tried selling cars in the US from a supermarket/online set up, it Fell on its head. People still want the personal touch when investing that sort of money.
Matty B – my mistake on the figure. 250K is the number of Toyotas sold each year here, somewhere closer to the 1,000,000 mark would have been more on the money.
Dlr 1 – you’re right, I have little understanding of the dealership process, never having worked in one, or bought a car from one (no guesses as to what you do). I’m coming from a broader macro-economic here, trying to look at the larger picture. Any industry which cannot sustain itself without Government intervention really needs to re-invent itself.
If dealers are in strife now, imagine what it will be like further down the track.
Grammar Nazi,
i agree with your sentiments on australia not needing 1 million new cars a year.
but you dont realise what has happened with what this article is relating to.
what has happened is like the bank that holds your mortgage on your house saying we arent lending money for houses any more, we want all our money back please.
or even like whoever you financed your personal car through asking for the money to be paid out immediately.
any bank can legally recall your loan.
not even your personal house is safe from the bank demanding it be paid out immediately.
how would you feel if you went to the mail box to find a letter demanding you paid out the rest of the remaining 20 years (for eg) in repayments???
would you consider your self as being someone who is unfit to run a household???
plenty of businesss require loans or over drafts to be able to operate.
Greenhouse – JIT vehicle production? You arent to sharp are you….
Andrew M way off the track as per usual…..
well the automotive industry surely deserves this bail out. many people work for automakers or depend on them so it was pretty bad if companies closed.
Forza,
you are the kind of guy who thinks everyone but you are heading the wrong way down a highway when you meet everyone head on.
you dont at any point start to think its you thats a little high??
Capitalism was always about cut throat survival of the fittest.
Now they want us to save the weak? Japan never did this in the 90’s and thats why theyre soo strong.
Wheelnut Says:
December 6th, 2008 at 10:52 am
“KRudd obviously realises how important the Automotive industry [Ford and Holden] is to Australia and the economy…. which is more than I can say for a number of others on this site..”
Actually, Krudd and his dimwit colleagues have no idea – they’ll play Robin Hood until the next election just to retain government. His latest bail out is a sweetener to those blue collar electorates in VIC and SA who will vote for him and his totally incompetent state mates in coming elections.
We will never be competitive with Asia in numerous areas, including labour, and generally still work on antiquated manufacturing principles. Why delay the inevitable? Will we pump even more money, say $10 billion, into the auto industry in five years time? Where was all this government support when heavy manufacturing started dwindling in Australia?
All these tax payer bailout advocates have no idea how far behind the times we are as a manufacturing nation… have any of you worked in a workshop here? Or seen the huge progress and advancements in manufacturing in places like Vietnam, China and South Korea?
“Whilst in the US a survey shows that 60% of Americans are against the proposed bailout of their Automotive Industry.”
Wouldn’t you be if you were a US tax payer? I’d let them sink, and then start afresh. Sure, significant short term pain – but negotiations with the auto unions can start afresh…
BTW I think you’d be surprised at how many Australians would be prepared to let the local manufacturers sink as well.
Quote [CB]; I think you’d be surprised at how many Australians would be prepared to let the local manufacturers sink as well.
yeah anyone that wants to put their job indanger as once the car industry goes there will be more than the 40 odd thousand people employed by Holden Ford and Toyotas out of work.
When such a mjor industry goes the impact on other industries and other areas of the economy is significant.. it results in a downturn and loss of jobs in the retail; hospitality and tourism; financial; entertainment; real estate and construction industries to name a few
Others who would like to see the Local manufacturers sink are those who are willing to pay 20-25% income tax.. which is exactly what they will be doing as the gummint will have to increase centrelinks budget given that so many people who rely on it having lost their jobs because the local auto motive industry disappeared.
But of course these dim-witted people think that if/when Holden Ford and Toyota leave Australia that some how cars will become cheaper. Sure Tariffs will become 0% however; car companies are in business to make money.
Therefore; its more likely that inorder to increaase profits car companies will either keep prices the same as what they are now if not make them higher.. and we in Australia will have no choice but to pay whatever they want because it comes down to a simple matter of supply and demand – they’ve got something we want.
Mind you very few of us will actually be able to afford or buy a new car as half of us will paying so much of our wages in taxes to support the other half that are out of work and reliant on centrelink
So irionically most of us will be driving 10 year old Holdens and Fords – Luckily Holden Commodores and Ford Falcons are proven to be more reliable last longer as well as be cheaper to repair than virtually all other passenger cars on the market
Yep, I don’t work in the auto industry. But I reckon the industry now has to do things differently. Why stick to the same model is what I’m saying? It’s not working. Plants are going broke. Stock is piled up all over the joint. Wrong cars / engines for the times. It may have been acceptable 2 years ago, but not now.
Yeah, people gotta test drive the car. You don’t need a paddock full of cars. Organise another way. Share cars, drive the dealers demo cars, swap cars, People have to see colurs. You don’t need every model / every colour. Use panels, use cameras… jeez.. why keep doing stuff the same if it don’t work?
So what if it didn’t work selling cars on line in USA? Why can’t it be done now? Try.
greenhouse, unlike your woodie mate andrew you seem like a nice bloke so i am going to explain to you why things wont work they way you think they should.
The short answer is car manufacturers will go broke in a week if they allowed dealers to go for the JIT method you are talking about. It will never happen. end of story.
Yes Andrew of course im the one going off on tangents again……
Greenhouse
“Yeah, people gotta test drive the car”
Greenhouse
“So what if it didn’t work selling cars on line in USA? Why can’t it be done now? Try. ”
Do you see the issue with both of these statements ? I personally would have no problem selling cars on the online, would make my job a hell of a lot easier not having to deal the public. Problem is people won’t spend $20 to $200+ Thousand dollars sitting at their desk. And how does this work in the used car market.
I understand this whole bailout with dealers, and to the best of my knowledge it has to be paid back anyway. It’s not like with manufacturers who are getting “hand outs” That’s a completely different issue.
The idea behind a “bailout” is to help an organisation realise theres an issue an forward plan to stop it happening again. The biggest question is, what are local manufacturers doing to get profitable ?
Forza,
glad to hear you finally admitt your mistakes.