Dealers hit brakes as car finance rationed

John Phillips
It is difficult to estimate the market share of recent vehicle finance drop-outs General Motors and GMAC, with some estimates ranging up to 40 per cent.

Michael Mitrovits, chairman of the Australian Fleet Lessor's Association and managing director of Interleasing, explains the current market situation.

"At this point in time, there is a lot of it is speculation as to who might fill the gap, but there are two significant, well backed players that remain in the market.

"The biggest is Esanda, because it is backed by the ANZ, and I think that they would be selectively choosing which dealerships they would like to fund, and the pricing that would suit them, in terms of the retail contract that needs to be fulfilled every month as well.

"So they are an obvious candidate, and the other one is St George. Going ahead, by getting acquired by Westpac, the bank will have even more financial strength.

"The only other one coming to mind is Capital Finance, who are not the largest player but if their United Kingdom parent [HBOS] is able to provide funding, then they might be increasing their balance sheet size as well".

GMAC on Thursday and GE Capital on Friday announced plans to wind down the vehicle financing operations in Australia. Dealers will have to find replacement funders for their stock over coming months.

GE may also have ceased writing new leasing business, including fleet leasing. The New Zealand Herald reported today that Custom Fleet imposed a moratorium on new leasing in Australia and New Zealand.
The newspaper said GE described the moratorium as short term.

Mitrovits said it is difficult to ascertain an accurate estimate of the combined market share GE and GMAC had of the Australian vehicle leasing market.

"I have asked a few players in the market and the numbers vary widely from 25 per cent of the market upwards to around 40 per cent of the market. So a good estimation is around one third".

Mitrovits does not expect any new entrants to the market to cover the gap.

"I think what will happen in the short to medium term is the number of vehicles in the dealerships will be fewer, because their credit facilities will probably be trimmed back a little bit.

"If we use Monday and Tuesday this week, we noticed the number of used cars bought by car dealers did reduce from what we would expect in a normal market, so I think people are already beginning to reduce inventories in their dealerships".

The financial impact on businesses needing vehicles as part of daily operations, will be hit by vehicle shortages and higher funding costs, but potential relief may be in the form of cheaper vehicles.

"I would expect the credit lending standards to be tighter than they were say last month, and I would expect the interest rate to be not as attractive.

"I am not talking significant jumps (in interest rates), only that there is a scarcity of money, so this has to be priced to risk.

"In terms of other places for money, I know credit unions certainly lend for vehicles and perhaps aren't as active in providing finance.

"In terms of prices, I think that vehicle prices will become more attractive for the consumer, just given that dealers want to shift stock to reduce the size of the number of cars they carry".

Mitrovits said the increase in the luxury car tax was also having an impact.

"We are already seeing a very big impact in the number of units being sole in the luxury segment".