Oct. 3, 2008 — The ongoing U.S. financial crisis is putting a squeeze on auto retailers across the country, and the Virgin Islands are not immune, according to local dealers.
Economic uncertainty is causing potential customers to put off major purchases, and the credit crisis is making hard for even people with good credit to get a loan to buy cars. Reports from several financial monitors in the last week predict as many 20 percent of U.S. car dealers will be forced out of business.
"It’s pretty bad, as bad as I can remember seeing it," said Scott Fricks, general sales manager for Caribbean Auto Group, which operates car dealerships on both St. Croix and St. Thomas. "In general, the automobile business in the Virgin Islands has been affected horribly."
In a phone interview Thursday, Fricks said it’s not the first time the auto industry has seen hard times. It’s cyclical, he said. But even in the 1970s and early 1980s, when interest rates skyrocketed and buyers were paying as much as 18 percent on their loans, it wasn’t as bad as it seems now, Fricks said.
At Metro Motors in Christiansted, Jeff Howard echoed Fricks' concern.
"The banks are tightening up on credit tremendously," he said. "Obviously it’s affecting our sales. People are holding their money close. Our traffic, the potential customers walking in, is probably one-third of what it usually is."
Until recently, banks would accept loan applications, then begin the business of collecting documentation to support the loan. Now they want the documents up front, Howard said. They’re also asking buyers to put more money down. And even with the new, tighter rules, even buyers with good credit histories are having trouble getting financing.
With sales slumping and credit hard to get, auto manufacturers are digging deep to come up wth more incentives, rates, zero-percent credit, anything to promote sales.
Dealers who can learn to operate in the new, tight-credit economy are the ones that will survive, Howard said.
"We all have to adjust and tweak and go with the flow, go with a different approach in a lot of ways," he said. "The average buyer is under a little more pressure when it comes to knowing whether he can borrow money."
Fricks added that being part of a larger auto group with lots of resources gives him more flexibility than some dealers. A large dealership has financial resources, partnerships with multiple manufacturers and relationships with lending institutions that help it through troubled times.
And both Fricks and Howard pointed out that, just like good times, bad times are cyclical as well. Both expect the economy to improve and business to come back.
"I can’t see the banks or anybody going back to those loose, shoot-from-the-hip lending practices," he said, "but we’re all hoping this being an election year, as the new administration comes in, things will calm down."
Fricks agreed.
"I see the economy in the Virgin Islands rebounding relatively quickly — after the election, within the next 12 months," he said.
Both auto dealers said rising fuel prices have thrown another twist in sales, a move away from bigger, gas-guzzling vehicles.
"The gas crunch has turned people toward more economical cars," Howard said. "We’re selling more vehicles with four-cylinder engines. Six-cylinders are sitting on the lot and the four-cylinders are selling like hotcakes."
Fricks said sales of less fuel-efficient rigs such as the Hummer and Chevy Silverado have dropped, but he added that there hasn’t been a corresponding move toward the extremely fuel-efficient vehicles.
"We have seen a reduction in the extremely large gas-guzzlers, the really large, large un-fuel-efficient cars. We anticipated that. We anticipated we would see a demand for more fuel-efficient cars and we haven’t seen that," he said.
Instead, the growth seems to be in the mid-range cars, he said, suggesting that people who might in the past have bought the guzzlers still have the financial wherewithal to afford the sedans and smaller SUVs that still get better mileage, if not the best mileage.
Other dealers called by The Source for this article declined to be interviewed, failed to return phone messages or simply could not be contacted.
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