Chattanooga: Tighter credit cuts local sales

John Echols has been selling furniture for almost 50 years, but the business “is as bad right now as I’ve seen it,” he says.

“In 48 years in this business, I’ve seen a lot of ups and downs but I think this is as bad right now as I’ve seen it,” said Mr. Echols, the 73-year-old owner of Echols Furniture and Leasing Co. in Red Bank. “The economy is hurting a lot of people right now.”

The sell-off on Wall Street over the past couple of weeks has eroded more than $3.5 billion of market value from Chattanooga’s biggest publicly traded companies and heightened consumer worries over the worsening economy, local business owners and bankers said Monday.

Hit by rising gas and utility bills and declining values on many investments and properties, Chattanoogans are being more frugal.

“We have plenty of money to lend for qualified borrowers, but the big majority of folks are just not wanting to borrow money right now with the uncertainty about where the economy is headed,” said Wesley Smith, chairman and chief executive for Northwest Georgia Bank and a member of the board of the American Bankers Association. “I suspect this recession is going to be more severe than the last one (in 2000 to 2001).”

Concerns over the growing global credit crisis pushed stocks down Monday to their lowest levels in more than four years. Chattanooga’s biggest companies shared in the losses, adding to previous drops in the past two weeks and cutting the collective value of the top half dozen publicly traded companies in the region by more than 15 percent from their levels just 15 days ago.

Nonetheless, Mr. Smith and other bankers insist Chattanooga’s financial institutions remain solid and the local economy is positioned better than most markets to weather the economic downturn.

Some businesses seem to be benefiting, at least in part, by the slowing economy. Jimmy Jernigan, owner of Factory Direct Furniture in Chattanooga, said his sales have remained even this year despite reports of a fall-off in sales of up to 40 percent at conventional furniture stores.

“This gives us an opportunity to buy more merchandise at lower prices and that attracts more buyers and retailers to us,” he said. “I’ve had more repeat business in the past nine years as Factory Direct Furniture than I did before as a furniture retailer. It seems like the worse it gets for everybody else, the better it is for us.”

credit tightens

Frank Hughes, president of Cornerstone Bank in Chattanooga, said most banks are increasing their credit standards for borrowers in response to the slowing economy and tightening credit market.

“There are plenty of funds to loan out, but it is going to be more expensive and, as an industry, we’re going to do more to make sure it is paid back,” he said. “But fortunately in Chattanooga, the real estate market didn’t inflate as much as in many areas, so we are not likely to have as big of a slowdown.”

Nationwide, credit experts said Monday the era of easy borrowing is over as lending institutions tighten standards and require bigger down payments to avoid further loan losses.

“The needle has definitely moved toward tighter credit over the past 18 months in all forms of lending,” said Greg McBride, senior financial analyst for Bankrate.com. “Before 2007, though, we were in an era of such easy credit that many persons viewed borrowing almost as an entitlement and loans were made with little or no money down.”

consumer spending dips

Even before the recent tumult on Wall Street, Tennessee’s consumer-driven economy was sputtering, according to tax collections by the Tennessee Department of Revenue. In the first half of 2008, sales of furniture and home furnishings in Tennessee dropped 10 percent to under $1.6 billion, while sales of automobiles, trucks and boats fell 12.4 percent to under $7.5 billion, state tax collections indicate.

Over the past year, the slowing economy led General Motors to reduce its dealerships by 229 to 6,807, including the closing last month of Bill Heard Chevrolet, the nation’s biggest Chevy dealer. Ford dealerships are down by 139 to only 4,140 as of July. Chrysler eliminated 142 dealers to cut its number to 3,607 as of October, according to a report by USA Today.

But Elizabeth Owen, a spokesperson for the Tennessee Automotive Association, said Monday the Volunteer State still is doing better than many areas of the country.

“We’re well aware of the dire predictions about the future of car dealers across the country, but honestly, I think those predictions are overstated as they apply to Tennessee,” she said. “Tennessee dealers have weathered challenging economic conditions in the past and will do so this time as well.”

Brad Barnett, president of the Tennessee Bankers Association, said congressional approval last Friday of higher FDIC insurance limits should reassure Tennesseans with bank deposits up to $250,000.

“Eventually, the credit tightening we are now seeing in the large money center banks trickles down to smaller community banks,” he said. “But I think Tennessee banks and consumers have been very responsible in their response to a lot of the confusion and concerns we are seeing now on Wall Street and around the globe.”