TORONTO (Reuters) - Ottawa’s move to provide up to C$12 billion ($10 billion) to loosen financing for vehicle and business equipment loans and leases was welcomed by the struggling Canadian auto sector on Wednesday, but more needs to be done, industry members said.
The Canadian government included a plan in its annual budget on Tuesday under which it will buy securities backed by loans and leases on vehicles and equipment from banks and other regulated financial institutions.
The idea behind the Canadian Secured Credit Facility plan is that auto leasing companies, which have been battered by the credit crunch, will use the funds to provide more leases.
“The frozen credit market has really been a problem for organizations who have their own captive finance companies, like the Chryslers and Fords of the world, and others,” said Mark A. Nantais, president of the Canadian Vehicle Manufacturers’ Association.
“The C$12 billion is certainly welcome. I suspect, however, that the demand, or the need, is actually going to be much higher than that,” said Nantais, whose organization represents the Canadian arms of Ford Motor Co, Chrysler, and General Motors Corp.
Derek Holt, an economist at Scotia Capital, agreed.
He said the auto financing market in Canada is worth about C$60 billion. So even if the budget measure were solely directed toward the auto sector and did not include capital equipment purchases by businesses, it would only represent about 20 percent of the market.
“This isn’t the end of the debate in terms of how to repair some of the damage done to the leasing market,” said Holt.
Other measures the government could look at include allowing banks into direct auto financing, or providing guarantees on securities backed by auto loans and leases, he said.
Up until about a year ago, before the financing arms of GM and Chrysler backed out of leasing in Canada, around 44 percent of new Canadian vehicles were leased.
That fell to under 20 percent by July as credit markets seized up, and then inched back up to around 23 percent by the end of the year, according to J.D. Power and Associates.
The government’s secured credit plan is “not going to go very far ... but at least it may stimulate some sales in the short to medium term,” said Richard Cooper, executive director, Canada, at J.D. Power.
Cooper said auto dealers will also benefit from better access to credit but, ultimately, it all comes down to the consumer.
“If somebody doesn’t believe they are going to have a job in three or four months from now, even getting a lease or a loan at a better rate is not going to push them into a new vehicle,” he said.
Editing by Rob Wilson