Capital concern
BY DAVID HASSALL | 18th Nov 2008
Capital Finance Australia Ltd claims that it introduced the fee – which is refundable if finance is approved but not refunded if the dealer is unsuccessful – to discourage unnecessary and time-consuming applications during the current credit crisis, with hundreds of new requests having to be processed to cover for the withdrawal from Australia of GMAC and GE Money by December 31.
At the same time, the federal government is believed to be on the verge of announcing a state-backed scheme to resolve the massive credit shortfall for dealers – estimated at between $2.7 billion and $3.0 billion – left by the imminent departure of the two US finance giants.
The assistant general manager of Capital Finance’s motor division, Simon Abbott, told GoAuto this week that the company was not profiteering from the current crisis because of the amount of work involved in processing an application and because he expects the approximately 50 dealers who have so far applied will ultimately settle with his company and therefore be refunded the $10,000 fee.
However, a number of dealers have expressed their concern about the fee, and Federal Chamber of Automotive Industries (FCAI) chief executive Andrew McKellar has described the charge as “repugnant”.
“In the current market, we have something that’s verging on an emergency situation facing many businesses and, while I appreciate that there’s an increased demand now on the other financiers, I think to present that sort of charge … it doesn’t represent the cost of processing the application,” Mr McKellar told GoAuto.
“It’s a practice that I find repugnant.” Mr Abbott agreed that the $10,000 fee was not normal practice in the industry, but said it was necessary to avoid wasting time processing applications from dealers who had also applied to other finance companies and may not ultimately settle with Capital.
He estimated the time required to assess an application at 40 to 50 hours, and the total number of dealers needing new so-called ‘bailment’ finance for its stock at around 600.
“We’re just making certain that the people (who apply) are serious and we’re not going through a process of getting an application approved for them and then have them not proceed with us,” said Mr Abbott.
“It certainly makes them think whether or not they’re serious with us and I guess everybody who has come to the table has been willing to pay it because they know they’re going to settle with us.
“I’m not profiteering because I’m doing a whole lot of work and if they settle with us I’m not getting any money at all. If they don’t settle with us, it means that they’ve gone and shopped several other financiers at the same point in time.
“We don’t have enough time to get all these applications done in the next 60 days. There’s 600 dealers looking for finance, so if they all go to two financiers to see if they can get an approval, that’s 1200 applications that we’re doing. We don’t have the resources to do all that in 60 days.” Capital Finance is one of the three major car industry financiers left in Australia, alongside ANZ subsidiary Esanda and Westpac takeover target St George.
The company has processed about half of the 50 applications it has received in the six weeks since the crisis began and Mr Abbot said it had the capacity and finance available to handle more, but not for all dealers.
“I suspect that there isn’t going to be enough credit to go around,” said Mr Abbott. “That’s one reason why I put the fee in place, to say, ‘Hey, if we’re going to go through this process of evaluating you, I want to know that you’re serious.’ “I think that everybody that we’ve evaluated will end up settling with us, so all I’ve done is make myself feel comfortable that the work we’re doing will lead to a conclusion.
“The worst thing that could happen is that I go and do that work and they don’t settle, and then someone else misses out because I’ve wasted the resources credit-assessing someone that had no intention of moving.” Meanwhile, to address the overall shortfall in bailment finance the government asked Future Fund chairman and former Commonwealth Bank boss David Murray to help create a special dealer financing fund that would prevent healthy dealerships from closing simply through lack of credit.
The Australian newspaper revealed that Mr Murray would present his plans to the prime minister on his return from the United States yesterday (Tuesday), as well as to treasurer Wayne Swan.
The Murray Plan is understood to include enticements and guarantees (similar to those now applied to bank deposits) for the major banks to provide an estimated $2 billion to the finance companies that deal directly with the industry.
Mr McKellar told GoAuto that the FCAI was keen to stabilise the dealer credit situation and that if the Murray Plan was accepted it would “really help to fundamentally address the immediate challenges”.
“We don’t want to see a situation emerge where there’s a risk that any other players in the market will be forced to withdraw out of necessity,” said Mr McKellar.
“That’s the motivation behind trying to put together some fund package. Our first preference has been to try and attract the interest of the banks and I think that’s why David Murray was approached, given his extensive network in the banking sector.” Although Mr Kellar said that the contracting car market and the credit crisis would inevitably see some dealerships fail, he said that they were “fundamentally very sound, well-managed businesses” and “the actual risk is likely to be extremely minimal”.
He said it was an urgent problem that requires attention within days, not weeks.
“It is something that needs to be addressed as a matter of urgency, otherwise there is a risk that the situation will begin to spiral and the consequences of that could be catastrophic,” said Mr McKellar.
“We’ve had good discussions with treasury officials, and David Murray has made an evaluation of the situation and he appreciates the nature and the urgency of the problem.
“Notwithstanding all the other problems that are clamouring for attention at the moment, this is something that the government is looking to reach a decision on as a matter of urgency.
“It’s a ‘this week’ issue in my view. There’s further work to be done to get this in place so we need a decision to press the button and then we need to get on with putting an appropriate mechanism in place.
“We want to ensure that well-managed, viable businesses are not sent to the wall because of a lack of funds through no fault of their own.”
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