While there have been signs of those gears getting a little bit of oil, certain sectors of the economy remain firmly stuck. Or as CNNMoney puts it, "auto dealers are in their own special financing hell." How so? It's a toxic combination to be sure. A car dealership's inventory is much more expensive than other small businesses (like, say, The Yarn Depot). Additionally, the economy as a whole is still fairly south of the border so despite Cash for Clunkers, millions of people aren't buying expensive things. Then, of course, the banks that lend the money are themselves going belly up, almost 80 so far in 2009 alone.The decline in the housing market set off a domino effect across our economy. When home values declined, borrowers defaulted on their mortgages, and investors holding mortgage-backed securities began to incur serious losses... Other banks found themselves in severe financial trouble. These banks began holding on to their money, and lending dried up, and the gears of the American financial system began grinding to a halt.
To address the lose-lose situation, the Small Business Administration (SBA) is trying out several programs designed to help out dealerships. One such initiative sees the SBA backing the auto dealer loans. So far, only one dealership has qualified. The problem is that car dealers require a special type of loan known as a floor plan loan, and the SBA's program doesn't cover floor plan loans. These special loans allow dealers to repay the loan as the inventory sells, instead of on a monthly basis. And as inventory isn't moving like it used to, banks aren't keen on making any floor plan loans.
[Source: CNN Money | Image: Hulton/Getty]