"Change is the law of life and those who look only to the past or present are certain to miss the future." – John F. Kennedy
"Your success in life isn't based on your ability to simply change. It is based on your ability to change faster than your competition, customers and business." – Mark Sanborn
“The only constant is change, continuing change, inevitable change, that is the dominant factor in society today. No sensible decision can be made any longer without taking into account not only the world as it is, but the world as it will be.” – Isaac Asimov
2008 was a year filled with chaos, uncertainty, adversity and plenty of change for automobile dealers and finance institutions, and 2009 will prove to be much of the same as we struggle to climb out of the worst recession since the Great Depression. None of us have ever seen events unfold like we have over the past year, let alone experienced them first hand. We are in uncharted territory and facing perhaps the most challenging times ever for the auto industry. Call it the Perfect Storm, a Credit Tsunami, an Economic Meltdown or whatever; one thing is for certain. This is a time when only the strongest and most agile businesses will survive. It is a time of drastic change.
These are not times to hunker down in the storm cellar and wait for the sun to come out. Too many people are doing that already. Instead, this is a time for leadership. It is a time for prudent thinking, tactical action and efficient execution. Business owners and executives are the captains of their ships and when the weather is bad and the waters are rough, their number one priority is to steer their ships to safety.
Jack Welch reminded us that any organization is doomed to fail if the rate of change on the outside is greater than the rate of change on the inside. Dr. Spencer Johnson taught us to anticipate and embrace change in his book, “Who Moved My Cheese?” and there is perhaps no book more appropriate for these times than his. For those of us who work in automotive special finance, the “cheese” to which Johnson is referring is a metaphor for the money banks loan to consumers to buy cars. And it has definitely been moved.
In 2008, we lost 70 percent of our ability to finance customers with FICO scores below 650. Several finance companies, including HSBC and UACC, exited the business altogether, while the majority of others drastically changed their programs. The captives are turning away anyone without a 700-plus score, while AmeriCredit, Chase, Wachovia, and Wells Fargo all posted third quarter losses as a result of delinquencies and underperforming portfolios. So, what does all of this bad news mean to a dealer in 2009?
Like it or not, it means change is all around us. It means more dealers and finance companies are going to fall by the wayside. It means the consumer is going to have fewer options, which is probably a good thing. It means non-prime purchasers are going to have to settle for vehicles that better fit their budget. It means 150 percent loan-to-value car loans and 84-month terms for subprime buyers are more than likely a thing of the past. It means that as an industry we have to focus on the fundamentals of finance and originate prudent, secure loans with dealers and finance companies working together as partners in profit. Their mutual survival depends on it.
There is plenty of bad news out there today, and I certainly don’t want to jump on the bandwagon of doomsayers and preach about all the problems and how we got into this mess. Instead, I believe wholeheartedly that unless you’re part of the solution, you are part of the problem. The good news in all this mess is that the nonprime market segment is growing at a record pace, and the demand for subprime auto loans is increasing exponentially. It is going to be the “Charlie Hustle” dealers and finance companies who excel at smart subprime loan originations and aggressive, proactive collections that are going to come out on top—the ones focused on successive base hits instead of home runs.
With every new event comes change, and with every change comes opportunity. For example, it was only 56 years ago when the Allies ended the occupation of Japan. They were a country that for all intents and purposes was broken in every way except for their spirit. They were forced to accept change and were able to become the economic powerhouse they are today.
During the 1950s, Japan grew from a tiny, beaten country, totally dependent on importing the steel that was much needed to build infrastructure and industry, to the number one producer of it in the world by the end of the decade. Feeling strong about their accomplishment, the leaders of the country set an even loftier goal. In the 1960s, they set out to be the largest producer of the automobile by the end of the 1970s. They missed their goal by one year. In 1981, Japan built more vehicles than any other country. That’s not too bad for a nation that is isolated on an island and has to import 98 percent of their industrial resources.
My point is this – the only constant in business is change. When events take place that “move our cheese,” we can either sit and starve or get our heads in the game, fire up the entrepreneurial spirit, engage some good old-fashioned Yankee ingenuity and get to work doing what we know how to do best—win!
The new year will be here soon, and we’re still going to sell cars. We’re still going to finance cars, and consumers will continue to buy them because they need and want them. We will lose dealers. We’re going to lose some finance companies too. We may even lose GM, Ford or Chrysler. It is a classic example of economic Darwinism where the strong, agile and creative will survive. The whole world may be evolving, but the laws of business and the fundamentals of finance have not changed.
Mr. Tom Herald is a Professional Consultant and National Trainer and with Benjamin Herald Associates. He has over twenty years of experience in the automobile business and ten years as a dealer principal. He is a former Air Force Commander with extensive training as a leader and instructor. He is one of the top experts on Special Finance and can be reached at tom@heraldassociates.com or by phone 859.816.7990
Vol. 2, Issue 6