Car finance comes to a grinding halt

Australia's largest non-bank lender, GE Money, yesterday became the latest victim of the global credit crisis, announcing it was pulling the plug on its car finance and mortgage operations.

The news came as the Federal Government said it would consider extending its deposit guarantee to investment funds, which claimed to be freezing $12 billion in cash, before it is moved to protected bank accounts.

The Government also announced that, from November 28, it will charge up to 1.5 per cent on protected bank deposits of $1 million and above.

Banks which did not want the insurance charge could opt out.

The decision by GE Money was made just a day after GMAC, the finance arm of General Motors, announced it too was abandoning the car finance business.

GE will shed about 335 jobs in the process, 78 in NSW.

Together, the two companies provided finance for more than half of all dealerships in NSW. The dealers rely on the finance to buy their stock, and also to provide easy credit to customers.

GMAC hits the brakes

General Motors' finance arm is to shut down its Australian and New Zealand business, costing 185 jobs and putting a question mark over the operation of about 400 car dealers nationwide.

GMAC, which has operated in Australia since 1926, will close the division by the end of the year and wind up its local loan book, worth about $2.6 billion.

“We're going to cease retail and wholesale vehicle financing in Australia and New Zealand,” GMAC spokeswoman Tina Proia told BusinessDaily from New York yesterday. “This is it for the time being.”

She said GMAC had decided to abandon Australia because of funding woes brought on by the global credit crisis.

In the US, the struggling company has slashed new lending and demanded dealers start paying off the full amount of loans over floor stock.

Adding to the sector's woes, the finance arm of multinational GE is winding down its Australian motor finance book.

GM, which trades in Australia as Holden, holds 49 per cent of GMAC after selling 51 per cent to a consortium led by private equity outfit Cerberus Capital in 2006.

About 160 staff in Australia and 25 in New Zealand are to be made redundant.

“Unfortunately our employees in that area are going to be affected through the course of the transition,” Ms Proia said.

She said some staff would continue to be employed in Melbourne to work on the company's Asia Pacific business.

In addition to consumer finance, GMAC provides the wholesale motor finance dealers use to buy their display stock.

Those dealers will have to find new finance or repay the capital amount — a potentially ruinous scenario for smaller dealers lacking in cash flow.

Ms Proia declined to say how many dealers would be affected.

“We are going to work with our dealerships to have as smooth and orderly transition as possible over the next few months,” she said.

One car dealer said GMAC's exit would cause “quite a ripple” for dealers dependent on loans from the company.

“It would be pretty devastating,” he said.

Penfold City Holden dealer Craig Illing, who uses GMAC for wholesale finance, said the pull-out was an opportunity to get a better deal.

“I suppose we'll just use another financier,” he said.

“We've got financiers approaching us looking for our business.”

Holden spokesman Jonathan Rose said GMAC was an independent business and played down the impact on the car company's dealer network.

“The vast majority of our dealers are not GMAC providers,” he said.

It is believed GMAC services about 50 of the 265 Holden dealers in Australia.

Much of the finance company's client base is believed to be made up of small rural dealers of other vehicle brands, including Suzuki.

Making the market tighter, GE Money has begun running down its Australian car finance business.

“We have terminated a few agreements in recent weeks,” GE Money spokesman Tristan Everett said.

“This will have a dreadful impact,” James McCall, from the Motor Retailers Association, said.

“There are very few other providers of finance and we are desperately trying to seal a deal with another bank. If car dealers can't get finance they will go bust, it's as simple as that.”

GE also provides finance for most of Australia's interest-free retail schemes and will continue that business.

GE Money is also pulling out of mortgage lending and small business finance in Australia and New Zealand with its parent company — the world's third largest — blaming rising costs and a plummeting share price brought on by the credit crunch.

It will continue to offer mortgages through Wizard Home Loans, which it bought from founder Mark Bouris for $500 million in 2004, and which it is currently looking to sell.

Meanwhile, yesterday's announcements of changes to the deposits guarantee scheme follows investment sector complaints that the decision has caused a flow of cash out of their accounts to protected bank deposits.

The Investment and Financial Services Association said two-thirds of the top 20 fund managers had locked up their cash, affecting self-funded retirees, investors and small businesses.

Treasurer Wayne Swan said the Treasury and ASIC were “assessing all relevant actions that might be appropriate” to keep the sector healthy.

“This involves consultation with a large number of firms,” Mr Swan said.

ASIC will “provide urgent advice in relation to retail investor hardship”.