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Lending crisis forcing dealers to seek Ottawa's help - August 22, 2009
Restricted access to capital is hurting the day-to-day operation of the entire auto industry
In mid-April, a delegation from the Canadian Automobile Dealers Association travelled to Ottawa to try and persuade the federal government to free up some much-needed working capital for their members.
This is not the retail automobile industry looking for a government handout. Rather, it's an industry that urgently requires access to capital in order to operate their businesses – capital that has largely been withheld by banks and lending institutions.
The Toronto Automobile Dealers Association strongly endorses this request for increased access to capital.
I, too, visited Ottawa recently and met with government officials in an attempt to press the point and win some concessions.
This lack of available credit has become a critical issue among car dealerships across Canada. It's time the federal government stepped up and put some pressure on the banks to allow access to credit, so that the car industry can continue operating.
I commend the federal government for including the $12 billion Canadian Secured Credit Facility in the 2009 federal budget. But the government has yet to announce guidelines about how these funds will be utilized. In the meantime, dealers and consumers are left in limbo.
Operating a new-car dealership is a capital-intensive enterprise. The fixed costs in keeping a dealership open are considerable, especially the costs of maintaining inventory levels of new vehicles.
Many dealers are finding it difficult to buy vehicles from the manufacturers because they don't have access to capital. When dealers can't borrow money to purchase vehicles, they don't have product to sell and their businesses ultimately suffer.
Restricting access to capital affects the entire automobile industry.
When dealers stop ordering vehicles, manufacturers stop producing them, and layoffs in manufacturing, parts and at dealerships become an unfortunate possibility.
Car dealers aren't looking for a blank cheque. They're seeking creative ways to provide working capital so that dealers can buy vehicles and stay in business. It's that simple.
One of the issues that the Canadian and Toronto dealers associations discussed with government officials is an improved vehicle scrappage program.
Our association would like to see a program that offers car owners up to $4,500 or more for their older vehicles.
The current scrappage program (Retire Your Ride), which was announced in January, provides consumers with a paltry $300 for an older vehicle, or a choice of either a bicycle or transit passes.
The Canadian program has barely made an impact since its inception. It does not provide enough of an incentive for people to trade in their older vehicles. Most new car dealers offer at least $500 for used vehicles on trade – so the $300 is negligible.
By contrast, the "Cash for Clunkers" program in the U.S. (introduced in July) offers up to $4,500 in rebates for people who trade in their older vehicles for newer, fuel-efficient ones (domestic or import).
To date, this program has resulted in nearly 250,000 vehicles being traded in, and it has revitalized the U.S. auto industry.
In Germany, a much-publicized scrappage program provides consumers with $4,000 toward the purchase of a new vehicle. This has lead to a 20 per cent increase in year-over-year new vehicle sales there.
The retail automobile industry is Canada is experiencing a serious crisis, and the lack of credit for dealers is making the situation worse.
I'm urging the minister of finance to step in and ease restrictions so dealers can start borrowing money again.
The automobile industry employs one out of every seven people in Canada; it's of vital importance to our economy.
If this matter is important to you, then contact your member of parliament. Or contact the Minister of Finance directly.
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