As a young auto dealer, decades ago, I had an encounter with one of my neighbors, Fred Trump, who was a prominent real estate developer based in New York, and, yes, Donald's father.
Fred Trump said he had noticed that a lot of his tenants bought cars at my dealership and asked with amazement how the same tenants who did not pay their rent could purchase cars.
My answer was simple: If people don't have transportation, they can't get to work to generate income to support their families. That's why they make their car payments even if they can't pay their rent.
That's also the main reason that the automobile is the engine that drives the American economy.
Despite reports that the economy is seeing signs of improvement, the recovery has not reached the auto industry. In many metropolitan areas, the credit score of the average consumer is on a steady decline while auto financing has never been tighter.
It is not unusual to see a lender deny an auto loan to consumers who may have low credit scores but have always paid their car loans. It has become more difficult for many consumers to obtain car loans, and minority car buyers suffer the most.
Even when a lender approves a loan, the advance that is extended often limits the quality of vehicle the consumer can purchase. Like many other franchised auto dealers, I subscribe to the theory that in order to obtain repeat business and referrals it is necessary to sell only high-quality used cars.
In order to get vehicles of that caliber, we must pay more than book value. Unfortunately, lenders advance only a percentage of book value. So without sizable down payments, consumers cannot purchase those quality vehicles. As a result, in many cases consumers are forced to buy less reliable vehicles with significantly higher mileage.
Something needs to be done to keep the economic engine running smoothly.
The government did its part with the bank bailouts. But the banks seem to have used the bailout money for ventures more profitable than retail car loans. So the money hasn't quite filtered down to the auto industry. That has had a devastating effect on jobs and has crippled many dealerships.
Fortunately, I'm well-capitalized and have been able to weather the storm. But many of my fellow dealers who ran good operations were forced to close their doors. In my area alone, we have auto rows that have dwindled from 14 dealerships to three.
We all have heard the horror stories about dealers who had family businesses for many years and recently lost everything because of market conditions. Stories like those are all too common today. And if economic conditions don't improve soon, those horror stories will become reality for many more long-established dealers.
With the average credit score of the average American consumer on a steady decline and the continued tightening of credit requirements, the auto industry is on a road to disaster.
When the financing of an automobile is out of reach of the average American consumer, it will have a ripple effect on the whole economy. People who cannot get to work cannot pay their bills and support their families. People who do not have incomes do not pay taxes and require many costly government services to survive.
The automobile is still the engine that drives the American economy. We cannot afford to let it seize.