Automotive News - December 1, 2008 - (Page 30) 30 • DECEMBER 1, 2008 INSIGHT Credit crisis divides captives into 2 tiers Jim Henry autonews@crain.com Captive lease share by automaker The credit crisis has created a twotier landscape of automaker finance companies. GMAC and Chrysler Financial, in particular, have cut back on loans and leases while they themselves scramble for financing. At the same time, other automaker finance companies, including Ford Motor Credit and most import brand captive finance companies, have maintained or increased the amount of business they do with their dealers. “Ford Credit remains a strategic asset. It remains open for business,” Alan Mulally, Ford Motor Co. CEO, said last month in a conference call announcing third-quarter earnings. GMAC Financial Services and Chrysler Financial have led the retreat. Deep drop The credit crisis has forced GMAC and Chrysler Financial to virtually eliminate leasing as a sales tool, while Ford Credit and import brand captives have stayed in the game. 100% 80 60 40 20 0 ‘Painful choices’ In October, only 15 percent of GM’s consumer loans were financed by GMAC, down from 57 percent as recently as July, according to data from Power Information Network. GMAC also slashed its lease programs, practically eliminating leasing as a sales tool for GM dealers. In October, leases made up only 4 percent of GM’s total sales volume, down from 14 percent a year ago. Wall Street’s credit crisis takes most of the blame. GMAC is having trouble borrowing money to make new loans and leases. That forced the lender to make some “painful choices,” such as cutting back on leases and subprime loans, CFO Robert Hull said in a conference call last month. Tom Libby, a senior analyst for J.D. Power and Associates, says consumer loyalty to GM brands could drop if returning customers have trouble getting financing. “It’s hard to resist thinking they (GMAC) can’t get credit where they need to, and that’s hurting them. When your chairman has to go to the government looking for loans, that probably doesn’t help, either,” Libby says, referring to potential consumer reaction to GM’s Rick Wagoner and other industry leaders seeking federal loans. GMAC’s absence from the market provoked a sharp reaction from Mark LaNeve, vice president of GM North America vehicle sales, service and marketing. In GM’s conference call announcing October sales, LaNeve That’s what AUL delivers. Service contracts from AUL provide peace of mind for both you and your customers. That’s because AUL is the industry leader with an unmatched commitment to service, reliability and financial strength. To learn about the rest of our advantages, call AUL today. JUL Toyota Group Ford Motor Co. Nissan Group AUG Honda Group GM Chrysler Group SEP OCT Note: Automaker data encompass all brands owned by that automaker in the U.S. Source: Power Information Network 800.826.3207 www.aulcorp.com Service Contracts. It’s What We Do.® © 2008 Associates Underwriting Limited L.L.C. said the lack of financing probably caused half of GM’s monthly falloff. “Half of the year-to-year loss was due to credit issues,” LaNeve said. Instead of a sales decline of 45 percent in October, GM sales would have fallen only 22 percent, he said. LaNeve said the drop in leasing alone probably cost GM sales of 50,000 new vehicles. In mid-October, GMAC began offering loans only to those with credit scores over 700, slashing its customer base. Only 44 percent of all car buyers have credit scores over 680, according to Experian Automotive. “Our business runs on credit, LaNeve said. “They’ve got to make cars available for people other than the primo, primo buyers.” Chrysler Financial spotlighted the negative trend in leasing when it said in late July it would stop offering leases outright, effective Aug. 1. Low residual values on pickups and SUVs coming back off leases created big losses and write-offs for the Detroit 3 finance companies. Leasing made up only 5.8 percent of Chrysler’s overall volume in October, down from 24.3 percent in July, according to the Power Information Network. Chrysler Financial bought 95 percent of Chrysler leases in July. On the loan side, Chrysler Financial handled 48.7 percent of its dealers’ loan business in October, down sharply from 73.7 percent in September. which sells seven import brands. “Honda, Nissan, VW, Hyundai and Mazda seem to be near normal. Talking to my finance directors, we’re still able to finance somebody with a 550 to 600 credit score.” Besides cutting leases, the Detroit 3 finance companies offer lower loanto-value ratios, which earlier could have seen loan amounts higher than 100 percent of a new vehicle’s value. The companies also look for higher credit scores and ask for bigger down payments from customers. By contrast, Toyota Financial Services has stepped up loan business with Toyota Motor Corp. dealers in recent months, even as its proportion of leases has shrunk. Toyota Financial, which is running a 0 percent loan incentive on 11 Toyota models, had an 87.6 percent share of Toyota, Lexus and Scion business combined in October, up from 74.4 percent last year. Losing leases cuts volume Ford executives have missed few opportunities to point out how glad they are to have a wholly owned finance subsidiary devoted entirely to auto finance. That’s in contrast to GMAC, which is controlled by Cerberus Capital Management LP. Ford Credit is “a strong partner,” says Jim Farley, Ford group vice president of marketing and communications. “That stability is really key for our dealers.” Ford Credit’s share of Ford dealers’ loans was 63 percent in October, compared with 51.7 percent a year ago, according to Power Information Network data. Still, the captive has cut back on leases, which generated only 8 percent of Ford’s sales in October, down from 18 percent a year ago. The slashing of lease deals by automaker finance companies has been a problem for dealers. Ray Ciccolo, owner of the Boston-based Village Automotive Group, which sells seven domestic and import brands, says cutbacks in leasing have hurt luxury brands in general in his area, but domestic brands in particular. “One of the benefits of leasing is that in three or four years, you know you’re going to be getting that car back and that customer back,” he says. “With a purchase, you don’t get that second bite of the apple, which is worse for your business in the long run.”c Imports hang in While GMAC and Chrysler Financial have cut back, Ford Credit and the major import brands have hung in there. Charles Oglesby, CEO of Asbury Automotive Group Inc., says the import brand captives have been an advantage for his group, which gets most of its sales from import and luxury brands. “With our portfolio mix, Toyota Financial, Honda Financial, NMAC (Nissan Motor Acceptance Corp.), they are still lending money, they see this as an opportunity to gain market share,” Oglesby says. “With the domestics, financing is an issue.” Import brand dealer John Hawkins agrees. “There are two auto industries out here right now. One is the domestics, although Ford might be a little healthier than the other two right now. The other is the import franchises,” says Hawkins, chairman of Great Metro Autogroup in Montclair, Calif., http://www.aulcorp.com http://www.aulcorp.com http://www.passtimeusa.com http://www.passtimeusa.com
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