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Reuss: Industry Must Act Swiftly At Any Hint of Double-Dip Recession

Government action to ensure dealers and consumers have access to credit would be critical should the economy show new signs of slowing, a top GM executive says.

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NADA Convention & Exposition

ORLANDO, FL – General Motors Co.’s top North American executive says the auto maker has not formally drawn up a contingency plan should the U.S. economy fall back into a recession.

However, the company would motivate the industry to work quickly to stem any erosion in consumer confidence should signs of a feared double-dip surface.

“If that happens,” says GMNA President Mark Reuss, “it won’t be a GM problem; it will be an industry problem.

“So when you start to see the confidence waning, you’ve got to backstop it, even if you don’t use it,” he tells journalists during a roundtable discussion linked to the annual National Automobile Dealers Assn. convention here.

Consumer confidence in recent months has begun rising slowly but unevenly.

According to The Conference Board, which samples 5,000 U.S. households every month, consumer confidence mounted a comeback from all-time lows last summer, before slipping back later in the year. Since the end of October, the key economic indicator has booked modest improvements every month.

Although The Conference Board says in its latest report consumers on the whole are more positive, the organization does not expect an uptick in economic activity soon, nor is it more confident about their financial position than at the close of last year.

Consumers’ wobbly confidence comes against a still-depressed housing market and stubbornly high unemployment.

Among the few bright spots, dealers are finding it easier to get credit for car buyers slowly returning to showrooms, and auto makers have been able to ratchet up production.

But globally, the financial mess continues, most recently in southern Europe where the European Union has put deficit-ridden Greece under financial surveillance. The situation in Greece puts the value of the euro at risk, as does continued economic stagnation in Spain and Italy.

“It’s of interest to us,” NADA Chief Economist Paul Taylor says.

The likelihood of Europe’s problems affecting U.S. cars sales would seem thin, but it serves as a grim reminder of how quickly the world’s economy spun out of control when bets on bad mortgages sunk U.S. investment banks, forced home foreclosures and record-low consumer confidence and new-car sales.

“The confidence piece of this, from a dealer and customer standpoint, is very important, so at any indication of (a double-dip), we would want to meet pretty quickly with anybody that will listen,” Reuss says.

He specifically points to the U.S. government, where the industry would first seek financial support for dealer floor plans. Last year, some 2,000 of the nation’s 22,000 new-car dealers closed because they could not get banks to help them finance their inventory during the credit crisis.

But Reuss says measures would need to be taken to ensure consumers could continue to access credit, as well. When the economic crisis threatened GMAC Financial Services, where most GM dealers drew credit for buyers, the lender cut off leasing and then financing altogether.

The lack of credit from GMAC helped send the former General Motors Corp. into bankruptcy.

Reuss says the effect of the Federal Reserve taking action to preserve lending cannot be discounted. “The confidence that instills within people in the industry, all the way from the supply base right to the customer, is massive.”

Reuss should know. As head of GM’s Holden Ltd. unit in Australia and president of the country’s Federal Chamber of Automotive Industries at the height of the global financial crisis, he helped win federal funding to stem new-car sales losses.

GM warned the U.S. government of a coming storm in 2008, and it could be argued the Feds were slow to react due to a lack of understanding as to how closely auto makers, suppliers and lenders are linked.

Susan Docherty, chief of GM sales, service and marketing in the U.S., says at the roundtable discussion she doubts the government would fail to listen to the industry if new economic threats arose.

“We’ve been down this path before,” she says. “It is painful, but I think we have the leverage.”

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