Like many of you, I’m always on the hunt for something positive. And you know what? There really were some positive signs in late July and early August.
The first bit of good news came from Ford. In July, the company reported its first sales increase in two years.
And while there wasn’t any growth, the gross domestic product shrank at a better-than-expected 1 percent annual pace during the second quarter after dropping 6.4 percent the prior three months. Heck, even the Dow Jones Industrial Average realized its best month since 2002 in July. And as we moved into August, the S&P 500 composite stock index rose above the 1,000 level for the first time in almost nine months.
Then there was DealerTrack. Yes, the company reported a revenue decline for the second quarter, but there were some positive signs buried inside that report. The number of active financing sources on its network increased from 733 in the fourth quarter 2008 to 755. It may not be much, but we’re moving in the right direction.
The most exciting news to come out of August was AmeriCredit not only posting a fourth-quarter profit, but also successfully executing the first subprime auto securitization of 2009. More importantly, the bellwether of the subprime financing industry is now looking to sign up or reactivate dealers.
And while all of this is good for our battered psyche, I think the true indicator that the economy is on the mend from last year’s economic whiplash is the jobless rate. Well, guess what? The rate dropped unexpectedly from 9.5 to 9.4 percent in July — the first time in more than a year.
My point in telling you all of this is that it’s time to switch out of survival mode. Heck, the Cash for Clunkers program did wonders for our industry — boosting the shopping rate to 19.6 million in just over three busy weeks — but now it’s time to start looking at long-term goals.
The path going forward has already been paved. Think about it — you guys and gals in the F&I offices were on the front lines of what was absolutely the worst period for financing. You learned what your finance sources want, and what they don’t want.
And while we’re not out of the woods yet, I get the sense that things will either remain the same or get slightly better. That was the sentiment I heard from Experian Automotive’s Melinda Zabritski. While she stays away from making market predictions, she is hearing some positive things from the finance sources with which she is in contact.
Zabritski said she expects that we’ll continue to see some of the higher numbers and a little bit of tightness in pricing on the new-vehicle side. However, she also said she wouldn’t be surprised to see average scores on new vehicles start to come down a little bit as the year progresses. And if they don’t, she doesn’t expect them to rise like they did during the first two months of the year, when the knee-jerk reaction to the economic crisis put many finance sources on the shelf.
And think about what we already know.
We know that more consumers were being pushed toward used-vehicle loans, a situation that probably won’t change much. We know that prime is where most finance sources feel comfortable, and we know that sources in the subprime spectrum (at least those that are still around) are pretty comfortable in their arena as well. And don’t forget the captives. Zabritski said that when banks moved away from the subprime space, many of the captives picked up some of the slack. Heck, Ford Motor Credit picked up 7 percent market share in that segment during the first quarter.
There’s even good news for those states hit hardest by the mortgage collapse. Zabritski said she’s heard from her contacts that lenders are no longer afraid of states like California, Texas and Florida. Some are coming back, albeit a little more judiciously than they were before.
The one credit segment that will remain problematic is nonprime. That’s because it’s a space that’s difficult to figure out from a risk-based pricing standpoint. It just requires more planning and more analysis.
My point to all of this is that the knee-jerk reaction to the collapse of the credit markets has loosened up a bit. And while it doesn’t mean happy days are here again, it does mean we have a foundation from which to work. So, let’s roll up our sleeves and get back to what this industry does best — sell cars.