The NYTimes reports today that the crisis in the credit market is hitting the auto industry particularly hard.
The virtual lockdown on credit is hurting Detroit’s Big Three and other automakers at every level. More consumers cannot get auto loans. Dealers are hard-pressed to secure financing for new inventories. The auto companies themselves are running short of cash and can hardly afford to borrow more at interest rates as high as 20 percent.
U.S. car sales are hitting double digit declines this year, with no bottom in sight. Potential car buyers (an already dwindling group) are having a harder time than ever getting a loan. This year only 63% of car loan applications are being approved, compared to 83% in 2007. For subprime borrowers, the situation is even worse: only 22% are getting loans approved this year, versus 67% last year.
Those that are getting loans are paying much higher rates.
Auto dealers are already choking on bloated inventories of gas-guzzling SUVs and can’t get financing to stock up on more popular models. This year 600 out of the country’s 20,770 car dealerships have gone bankrupt, including Bill Heard Enterprises, formerly the top-selling GM dealership in the country.
Japanese car-makers aren’t faring much better. After two years of non-stop growth in US sales, sales are quickly heading downward. According to the Washington Post, the decline of US sales are leading the entire Japanese economy into a recession.