Automotive News - October 20, 2008 - (Page 35) OCTOBER 20, 2008 • 35 LaNeve: Tight credit costs GM thousands of auto sales Amy Wilson awilson@crain.com tomers that some bank, somewhere, probably will finance their vehicles. DETROIT — For General Motors sales chief Mark LaNeve, the withdrawal of GMAC Financial Services from most retail auto financing was another blow to his dealers. LaNeve saw GM’s market share start to firm up in August and September. But now he’s facing a collapsing market without one of GM’s most important tools. Back when GM was still the sole owner of GMAC, the captive finance company was central to “Keep America Rolling,” the automaker’s 0 percent interest rate campaign that helped prevent industry sales from cratering after Sept. 11, 2001. Today LaNeve, the former University of Virginia linebacker, is calling for a more defensive move: GM’s “Financing that Fits” advertising campaign — aimed at reassuring cus- GMAC now must compete Before it sold 51 percent of GMAC to Cerberus Capital Management LP, it was hard to imagine GM promoting lenders other than its captive unit. Now GMAC can’t get the capital to do much retail lending. GMAC’s rates aren’t competitive for customers with strong credit, and the lender won’t finance customers with marginal credit. “Our dealers can and should take advantage of the best rates possible on behalf of the customers,” LaNeve told Automotive News last week. GM is still working with GMAC on incentivized or subvented business, but on the rest of the retail deals, “GMAC has got to compete like every other bank.” Those financial institutions are competing for fewer customers. So far in October, sales and traffic are down from the prior two months, said LaNeve, GM’s vice president of North American sales, service and marketing. The pace has been similar to June and July, when GM sales dropped 22 percent. The meltdown in the financial markets is probably playing a bigger role in slowing sales than the GMAC restrictions, LaNeve said. GM dealers already did “almost no penetration” in leasing with GMAC in September. “It’s mainly consumer confidence, and a lot of people don’t even think they can get credit,” he said. Thus the “Financing that Fits” campaign. 12,000-plus a month In early September, LaNeve estimated tight credit was costing GM 10,000 to 12,000 new-car sales a month. That number is no doubt higher now, he said. Many dealers were taken aback by GMAC’s declaration last week that it would not finance a consumer with a credit score lower than 700. LaNeve said at least a quarter of GM’s newvehicle buyers are in that group. But before dealers can troubleshoot financing solutions for buyers, dealers have to get buyers through the doors. And this month, Mike Mullaney’s Hudson PontiacBuick-GMC store in Poughkeepsie, N.Y., has been “eerily quiet.” Instead of the typical 60 or so new and used vehicles sold by midmonth, Mullaney had delivered just 22 by late last week. “GMAC is a real concern to us because it’s our name-brand product. It’s a little bit off-putting,” Mullaney said. Still, he has cultivated relationships with other lenders that have taken care of his customers’ financing. And after a conference call last week with GM and GMAC leaders, Mullaney said he feels reassured that the companies are working together to try to solve the problems. Several dealers said GMAC clearly intends to continue wholesale financing of GM dealerships’ inventories, with limited restrictions. In a memo to GMAC employees last week, CEO Alvaro de Molina said the company had “limited, if any, access to funding.” He said GMAC’s efforts to secure funding “on some days is akin to hand-to-hand combat.” LaNeve said he and GMAC executives are meeting daily. Reps of the captive are as frustrated as GM executives by those liquidity issues. “They know their core mission is to help dealers sell cars,” LaNeve said. “They want to be more aggressive and do more business, so we’re not at war.” c GMAC Dealers scramble to find loan sources continued from Page 1 Boosting the rates GMAC has raised the “buy rates” on the loans its dealers use to create consumer loans. Rates are for consumers with good credit on 5-year loans. BUY RATE the increase pushes GMAC’s buy rates to as much as 2.5 percentage points above rates of competing lenders. In Cooper’s market, GMAC’s best buy rate is about a percentage point higher than competitors’ — 7 percent, compared with 6 to 6.25 percent — on five-year loans for customers with an ideal credit score and profile. Dealers make money on the deals by charging consumers a rate above the buy rate. The profit-generating spread between the two typically is between 0.75 and 1.5 percentage points. On a five-year, $20,000 loan, 1 percentage point adds about $10 to the monthly payment. GMAC Quantum Auto Group Citizen’s Auto Financial TD Bank 7.69% 5.29 5.69 5.40 Source: Bob Maguire, Maguire Auto Group, Bordentown, N.J. Rates apply to his market. Temporary retreat? But it’s not clear how long GMAC’s retreat will last. The captive told dealers its pullback would last until the credit markets improved. GMAC rais- es funds by bundling loans and selling them to investors. “GMAC’s businesses continue to be affected by the frozen capital markets,” CEO Alvaro de Molina told GMAC employees in an e-mail last week. “There is limited, if any, access to funding for our mortgage and auto finance operations.” Although GMAC’s problems stem from chaotic financial markets, they also point to a new reality: GM no longer controls its former captive finance unit, which once existed to support the automaker’s sales. In November 2006, GM sold 51 percent of its captive finance company to an investment group led by Cerberus Capital Management LP for $14 billion. It’s not clear how much help will come from other lenders, such as credit unions. “This provides credit unions with a good opportunity to gain new loans,” says Tony Boutell, CEO of Credit Union Direct Lending, an online service that connects dealers with credit unions. “We’re making sure that the credit unions are informed of GMAC’s new loan restrictions, and we’re recommending that they contact GM dealers in their areas.” But Boutell says credit unions will stick with low-risk customers. He says credit unions “have not traditionally been active in the subprime lending arena.” Banks seek loans Huntington National Bank, a major auto lender based in Columbus, Ohio, also expects more business. “I don’t think we will have to go after GMAC business,” says Nicholas Stanutz, an executive vice president with Huntington. “It will come to us.” Dealer Bob Maguire, former chairman of the National Automobile Dealers Association, says GMAC’s minimum 700 credit score disqualifies three out of four of his customers. And its standard rates would scare away the rest of them. Maguire, chairman of Maguire Auto Group in Bordentown, N.J., says GMAC’s buy rates, at best, are 2 percentage points higher than the three other lenders he uses for customers with good credit. Maguire’s GMAC buy rate on a 700score customer for a five-year loan is 7.69 percent, while the next highest lender charges 5.69 percent. Dealers fear that GMAC’s minimum credit score would scare prospects away. So on Oct. 17, GM launched an ad campaign to push the idea that financing is available. Automated credit application systems such as RouteOne help dealers find credit sources. “Even in the current environment, RouteOne has a broad set of lenders available who purchase across the credit spectrum,” says Justin Oesterle, a RouteOne executive. Hard for small dealers GMAC’s retreat is difficult for many small and mid-sized dealers who send most of their business to the captive. Dealers who finance much of their vehicle inventory through GMAC can become Platinum dealers. GMAC’s Platinum program qualifies participants for better rates on inventory financing and retail contracts, as well as cash bonuses. GMAC has eliminated some of the incentives. But it has suspended volume requirements on the Platinum program, recognizing that dealers will need to shift business to other lenders. Tommy Brasher, owner of Brasher Motor Co., a Chevrolet and Buick dealership in Weimar, Texas, says alternative lenders are available. But “to go out and find more banks is not as easy as it may sound,” he says. Brasher says that to use the new lenders’ forms, dealers must sign new agreements and update computers. Banks often cancel low-volume dealers. They also expect dealers to send their best-quality contracts to offset the riskier contracts. Because of this, dealers say, they can’t funnel all their prime customers to GMAC. Says Jerry Seiner, president of Jerry Seiner Dealerships in Salt Lake City: “Banks don’t want to buy the contracts unless you send them the borrowers with 700 scores and above.” c UPSIDE Downturn slashes commodity prices continued from Page 1 Oil’s wild ride Oil prices soared for more than a year and now are sinking fast. Here is a snapshot of prices every 6 months. $120 Price per barrel of crude oil ing costly sheet metal for body panels and cheaper steel for stamped components that don’t show. What automakers pay for steel is a closely held secret, but their longterm contract prices are far less than oft-quoted spot prices. Bo Andersson, General Motors’ group vice president for purchasing and supply chain, says he plans a “different mix of contracts with steel makers in a bid to get lower prices for 2009.” Andersson is negotiating with North America’s six largest mills. He plans to buy 6 million tons of steel globally both this year and in 2009. Andersson bought 7 million tons in 2007. GM and other automakers buy additional steel for their metal-bending suppliers. These resale programs 100 80 60 0 OCT APR OCT APR OCT 2006 2007 2007 2008 2008 Source: Bloomberg al costs, the carmaker may accept price increases. Automakers automatically approve pass-throughs for precious metals, as well as aluminum, zinc and nickel. Andersson says it’s too early to
Table of Contents Feed for the Digital Edition of Automotive News - October 20, 2008 Automotive News - October 20, 2008 Amazingly, vehicle inventories are low An upside of the big slide: Raw material prices dip â for now With GMAC out, banks trickle in Get your daily Automotive News - in video form, starting Nov. 3 Honda's Fukui favors fed loans, confirms V-8 To move the metal, Mike Kahn moves the store Hyundai airbag flaw tied to drink spills Texas promo: Buy a GM vehicle, get GM stock Chrysler's uphill road in China GM/Chrysler? Anything's possible GM/Chrysler deal? Companies' pension plans may need cash Acura dealers: A V-8 engine is on the way Buyers pursue former Heard stores Honda: We're still lending Gilles, Ligocki will speak at congress Fed list promotes high-mileage cars Party time: Saturn turns to grass-roots marketing Online inventory service aims to cut dealer costs Document fees must not become a dirty little secret Just put up a 'For Sale' sign Cash for clunkers? Scrap the idea Arbitration can work for everyone It's time we control our own destiny GM missed boat on Cheyenne, Volt Sept. truck sales fall 7.4% Microheat seeks Chapter 11 At Bosch, r&d spending remains strong GM's new diesel opens up, loses weight Urea must flow or new diesels won't go Hankook plans to bring fuel-saving tire to North America Odell: I can help Volvo tap more potential So far, BMW cruises above the credit crisis Jatco builds China plant to meet expanding CVT demand 10 appointed at American Axle Personnel Milestones Obituaries Supplier Personnel Biking buddies Ford targets fleets with parental control key European sales fall; VW group bucks the trend 11 innovators win honorable mention 25 finalists selected for 2009 PACE awards Suppliers to the 2009 BMW X6 GMAC's loan cutbacks cost GM thousands of auto sales Credit tops agenda for NADA chief 'Flash' draws modest cash at theaters Booth's new berth sparks CEO speculation at Ford Economy's skid sends ritzy toys to eBay Report: Mazda scraps plan for U.S. plant GM's quandary: Finding loans for the imperfect Taylor to Hummer - and then ... ? Tough times at Tesla Automotive News - October 20, 2008 Automotive News - October 20, 2008 - (Page Intro) Automotive News - October 20, 2008 - With GMAC out, banks trickle in (Page 1) Automotive News - October 20, 2008 - With GMAC out, banks trickle in (Page 2) Automotive News - October 20, 2008 - Texas promo: Buy a GM vehicle, get GM stock (Page 3) Automotive News - October 20, 2008 - Companies' pension plans may need cash (Page 4) Automotive News - October 20, 2008 - Companies' pension plans may need cash (Page 5) Automotive News - October 20, 2008 - Gilles, Ligocki will speak at congress (Page 6) Automotive News - October 20, 2008 - Gilles, Ligocki will speak at congress (Page 7) Automotive News - October 20, 2008 - Online inventory service aims to cut dealer costs (Page 8) Automotive News - October 20, 2008 - Online inventory service aims to cut dealer costs (Page 9) Automotive News - October 20, 2008 - Online inventory service aims to cut dealer costs (Page 10) Automotive News - October 20, 2008 - Online inventory service aims to cut dealer costs (Page 11) Automotive News - October 20, 2008 - Arbitration can work for everyone (Page 12) Automotive News - October 20, 2008 - Arbitration can work for everyone (Page 13) Automotive News - October 20, 2008 - GM missed boat on Cheyenne, Volt (Page 14) Automotive News - October 20, 2008 - GM missed boat on Cheyenne, Volt (Page 15) Automotive News - October 20, 2008 - Microheat seeks Chapter 11 (Page 16) Automotive News - October 20, 2008 - Microheat seeks Chapter 11 (Page 16A) Automotive News - October 20, 2008 - Microheat seeks Chapter 11 (Page 16B) Automotive News - October 20, 2008 - Microheat seeks Chapter 11 (Page 16C) Automotive News - October 20, 2008 - Microheat seeks Chapter 11 (Page 16D) Automotive News - October 20, 2008 - Microheat seeks Chapter 11 (Page 17) Automotive News - October 20, 2008 - Hankook plans to bring fuel-saving tire to North America (Page 18) Automotive News - October 20, 2008 - Hankook plans to bring fuel-saving tire to North America (Page 19) Automotive News - October 20, 2008 - Hankook plans to bring fuel-saving tire to North America (Page 20) Automotive News - October 20, 2008 - Hankook plans to bring fuel-saving tire to North America (Page 21) Automotive News - October 20, 2008 - Odell: I can help Volvo tap more potential (Page 22) Automotive News - October 20, 2008 - Odell: I can help Volvo tap more potential (Page 23) Automotive News - October 20, 2008 - So far, BMW cruises above the credit crisis (Page 24) Automotive News - October 20, 2008 - So far, BMW cruises above the credit crisis (Page 24A) Automotive News - October 20, 2008 - So far, BMW cruises above the credit crisis (Page 24B) Automotive News - October 20, 2008 - So far, BMW cruises above the credit crisis (Page 24C) Automotive News - October 20, 2008 - So far, BMW cruises above the credit crisis (Page 24D) Automotive News - October 20, 2008 - So far, BMW cruises above the credit crisis (Page 25) Automotive News - October 20, 2008 - Obituaries (Page 26) Automotive News - October 20, 2008 - Biking buddies (Page 27) Automotive News - October 20, 2008 - Biking buddies (Page 28) Automotive News - October 20, 2008 - Biking buddies (Page 29) Automotive News - October 20, 2008 - Biking buddies (Page 30) Automotive News - October 20, 2008 - Biking buddies (Page 31) Automotive News - October 20, 2008 - European sales fall; VW group bucks the trend (Page 32) Automotive News - October 20, 2008 - European sales fall; VW group bucks the trend (Page 33) Automotive News - October 20, 2008 - Suppliers to the 2009 BMW X6 (Page 34) Automotive News - October 20, 2008 - GMAC's loan cutbacks cost GM thousands of auto sales (Page 35) Automotive News - October 20, 2008 - Credit tops agenda for NADA chief (Page 36) Automotive News - October 20, 2008 - Credit tops agenda for NADA chief (Page 37) Automotive News - October 20, 2008 - Tough times at Tesla (Page 38) Automotive News - October 20, 2008 - Tough times at Tesla (Page 39) Automotive News - October 20, 2008 - Tough times at Tesla (Page 40)
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