Failed Finance Bailout a Blow to Auto Industry, Too

(MoneyWatch)  The auto industry is a major loser, if the failed financial-industries bailout or something like it can't get credit markets back to normal.

Automakers are both borrowers and lenders, an aspect of the automobile business that's second only in importance ?€" in practical terms, maybe equal in importance ?€" to the car companies as building and selling cars and trucks.

"Absent intervention by Congress, the ability of manufacturers to finance new motor vehicle sales may come to a halt," said Chris Stinebert, president and CEO of the Washington-based American Financial Services Association, a group that represents lenders including major auto lenders.

After the U.S. House of Representatives turned thumbs-down on the proposed $700 billion bailout, AFSA on Sept. 30 issued a statement calling on Congress to reach an agreement "immediately."

In a written statement last week, Stinebert referred specifically to the ability of the automakers to borrow money, which in turn they lend out to consumers in the form of auto loans, as opposed to the ability of consumers to qualify for loans.

In effect, the automakers and their finance subsidiaries sell off auto loans to investors as so-called "asset-backed securities," similar to bonds, to generate new money. The proceeds are in turn loaned back out to consumers.

Both Ford Credit and GMAC Financial Services finance most of their retail business that way, the companies said in second-quarter reports, but that market is in trouble, along with other credit markets. At the same time, the retail side of the auto loan business is also under pressure. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, has expressed concern in published reports that consumers may have trouble getting auto loans.

Stinebert's organization has asked Congress to be sure and include auto lenders and auto loans in the definition of "troubled assets" covered by any bailout package, in addition to mortgage lenders and bad mortgages.