Credit squeeze hits Twin Cities car lots

Twin Cities auto dealer Paul Walser appeared to weather the stormy economy just fine this summer. But the torrents roiling Wall Street and the world's economy have finally begun to frighten off his customers, pinching his sales, too.

"We were up through August and ahead halfway through the month of September. But now, we are down 20 percent for the month," said Walser, the head of the Walser Automotive Group in Bloomington, which is buying three more dealerships.

The limping economy and the herky-jerky $700 billion economic bailout package have frightened many customers away from big-ticket purchases such as cars. Some dealers now fear a credit freeze could chase away the few remaining shoppers. Tightening credit already has hit some dealerships outside Minnesota.

Ford Motor Co. Inc., General Motors Corp. and Toyota all posted September sales declines Wednesday. Ford dropped 35 percent, Toyota fell more than 30 percent and GM sales slumped 16 percent.

AutoNation, the country's largest dealer and owner of Tousley Ford in Minnesota, said that lenders are turning down nearly a third of potential car buyers who have good credit.

"We've got customers coming in and we can't get them financed," AutoNation spokesman Marc Cannon said.

But the state has fared relatively well in the credit markets, according to Walser, who regularly deals with the nation's major banks and the finance divisions of Toyota, Honda, Nissan, Chrysler and General Motors. It's consumer fears that have stalled sales in Minnesota, he and other dealers say.

"The finance arms of the manufacturers ... are still very engaged and have not shut off the spigots yet," Walser said.

The financial units help his customers buy Buicks, Pontiacs and GMC vehicles from his Bloomington dealership; Chryslers, Jeeps and Dodges from his Hopkins store and Hondas and Subarus from his Burnsville lot.

"The banks are hanging in there and think the government will get this bailout worked out. But if we don't do this, you will see the whole thing change," Walser warned. "The very credit problem [people] are asking about will become very real here."

Walser Automotive recently stopped sending customers to any lender that doesn't have a long-term relationship with the company. Walser said some lenders boast about great rates, but their positions change from month to month.

Focusing on core lenders should give Walser Automotive leverage and provide customers financing options in a tightening credit market, he said.

That strategy isn't necessarily working for Florida-based AutoNation.

Cannon said about 90 percent of the company's customers who have good credit used to get approved by AutoNation's banking partners. That's down to 60 percent now, Cannon said.

CNW Marketing Research in Oregon reported that only about 64 percent of all auto loan applications were approved during the first three quarters of this year. That's down from 83 percent one year ago.

"It's tough right now to get customers credit," Cannon said. "We have customers coming in and we can't get them financed and we are using different banks and financing entities. The bottom line is, it's extremely tight."

Not so long ago, only customers who had marginal credit had problems getting vehicle loans. "About 50 percent of those subprime borrowers used to be able to get an auto loan," Cannon said. "Now, that's down to 10 percent."

AutoNation executives are pushing Congress to approve the $700 billion bailout package to ensure that credit keeps flowing. "If we don't do something soon, you will see massive layoffs," Cannon said.

Scott Lambert, spokesman for the 438-member Minnesota Auto Dealers Association, said the state's problem isn't tight credit -- it's fear.

"The vast majority of our members said that there is no real change in the credit situation from a week ago. The events on Wall Street or [in] Washington have not affected the credit market," Lambert said.

"Yet we are seeing a dramatic loss in customer traffic."

He attributes the slowdown in Minnesota's vehicle sales to Washington's handling of the economic crisis.

"Suddenly, [Treasury Secretary] Henry Paulson decided to scare the hell out of everyone," Lambert said.

Before that, the dealers who gathered in St. Paul for the Republican National Convention last month seemed optimistic, he said.

"They had a good end of the summer. They were starting to sell trucks again because gas prices were starting to come down," Lambert said. "Now this. Everybody has wet their pants over this economic crisis."

It's one more punch in a long line of difficulties for the industry.

Minnesota's auto market fell 25 percent, as 60 dealerships folded in the past five years because of consolidations and declining sales, Lambert said.

In July, AutoNation cut 1,300 jobs after second-quarter earnings fell by a third. GM, Ford and Chrysler reported quarterly sales declines of 20, 27 and 34 percent, respectively.

Ford lost $12.7 billion in 2006 and $2.7 billion last year, as sales sank and thousands of employee buyout packages kicked in. Sales are down 17 percent this year. And sales of the compact Ford Ranger truck, which is made in St. Paul, fell 2.6 percent in September and is down 4.6 percent for the year -- so far.

Dee DePass • 612-673-7725