Jetcon bleeds customers and profit amid credit squeeze

Used car dealer Jetcon Corporation says loan rate hikes and scarce funds have slammed the brakes on cars moving off its lots, and pulled the auto trader into losses in the March quarter.

Jetcon has issued its first-quarter results, although its full-year results for 2022 are still outstanding.

However, the current filings suggest that the company may have ended the year with a profit of $15 million.

The March quarter, however, produced a loss of $1.76 million, as against a profit of over $10 million in the comparative year.

Jetcon Managing Director Andrew Jackson said the first-quarter loss can be traced back to a steep downturn in business, beginning in October 2022. It was around that time credit started to dry up, fewer customers were visiting Jetcon’s lots, and sales tanked, he said.

“From fourth quarter last year, car sales have been significantly down, worse than during COVID,” Jackson said. That stunned the company, as the downturn happened in what has traditionally been its peak period for sales.

“Fourth quarter last year is the worse we’ve had in a long time. From October, sales just dipped dramatically,” he said.

The dip in business came one year after the central bank began hiking interest rates to tame inflation. Those rate hikes pushed the central bank’s benchmark or signal rate from a low of 0.5 per cent to its current 7.0 per cent, resulting in banks hiking their lending costs, which made it more expensive to borrow.

The Bank of Jamaica has paused its rate hikes, but two months ago it implemented a back plan – hiking the cash reserve ratio in order to remove cash from the system.

Banks are required to stash more of their cash at BOJ. In such a scenario, lenders usually charge higher interest rates for loans as offset to the lower volumes of cash they have to lend.

With the adjustment in policy, which implemented a one-point hike in the reserve ratio, the banks must now deposit 14 per cent of their Jamaican currency with the BOJ and six per cent of their foreign cash.

Those deposits earn zero returns.

“It seems to me that the banks have been turning their money over to BOJ instead of giving car loans,” the Jetcon founder said.

“Banks that used to turn around a loan in a day or two are now taking two weeks, three weeks … the whole thing has just dried up,” Jackson charged.

He estimates that Jetcon’s sales have fallen about 50 per cent since October. First-quarter revenues slumped 30 per cent, according to the newly released earnings report, from $255.06 million to $179.70 million in 2023.

“That has continued into now in the present quarter. No easing up,” Jackson said.

In response, Jetcon has been ramping up advertising and marketing, while slashing prices, thereby putting a squeeze on its margins, but to no avail.

“Nothing works,” Jackson said in frustration. “All of that was good during COVID, but it’s no good now. Money is being squeezed out of the system,” he said.

Still, with inflation cooling off to 5.8 per cent and the Bank of Jamaica bullish on the return to the targeted range, Jackson said he was expecting credit conditions to ease going forward.

Jetcon is hoping that interest rates will start trending down later this year and buyers to return to the market.

neville.graham@gleanerjm.com