I read something recently that speaks volumes about what has happened during this financial meltdown.
AutoNation, the country's largest chain of auto dealerships, originated nine auto loans through GMAC in December, compared with 1527 loans during the same month in 2007. The number of Chrysler Financial loans to AutoNation customers dropped from 823 to 22. Ford was the only U.S. automaker that continued to offer a significant number of loans, as Ford Motor Credit wrote 1235 loans for AutoNation's buyers in December compared with 1624 a year earlier.
This illustrates how the lack of credit flowing in the system is a big part of what has knocked the construction materials industry backward, compounding the problem of housing foreclosures and a lack of demand. Our clients are complaining every day about their inability to find the credit they need to run their businesses at a time when it is sorely needed.
Their loudest complaint is not the lack of credit, which has come to a near-halt to buy new equipment. The problem is finding support just to do business. In many cases, producers are finding it difficult to simply renew existing credit facilities as banks cower during global economic uncertainty.
What is particularly maddening is that the Troubled Asset Relief Program (TARP) Congress rushed through in October was supposed to have addressed this. But six months later, conventional credit markets remain frozen. What does a producer do?
There are options. I traveled to a private equity conference early this year and expected to find the turnout light, given the current economy.
Wrong. The packed, standing-room-only conference was well-represented by investment bankers, CPAs, lawyers, and others looking for financing alternatives to address their clients' needs.
But they were clearly outnumbered by private equity, hedge fund, and mezzanine lender representatives anxious to pitch their stories. I learned there is clearly a free flow of credit in these alternative classes, even if it takes some work to find it.
Here are the areas that remain active:
Accessing these alternative financing sources takes time and effort, but your accountants and lawyers can help. While the infrastructure stimulus package is helpful, and the economy is Washington, D.C.'s top priority, recoveries take time, and credit needs don't wait. These alternatives can offer the answer.