Automotive News - November 3, 2008 - (Page 4)

4 • NOVEMBER 3, 2008 No off-lease cars? Certified will find others Arlena Sawyers asawyers@crain.com Despite the downturn in leasing for many brands, automakers’ certified used-vehicle programs will maintain an adequate supply of cars and trucks, executives say. Cars and trucks coming off lease traditionally are the major source of certified vehicles. But even as that supply shrinks in the next two to three years, administrators of certified programs say trade-ins, vehicles retired from rental service and vehicles bought from private owners will fill the gap. “We’re reducing our reliance on leasing, but we’re not getting out of leasing,” says Bill Bates, pre-owned manager of BMW of North America LLC. “And there are still lots of other Toyota’s Norm Olson: Trade-ins account for most used vehicles certified by Toyota dealers. opportunities for dealers to get certified cars.” In September, leases accounted for 12.5 percent of U.S. retail new-vehicle sales, according to J.D. Power and Associates’ Power Information Network, down from 18 percent in September 2007. Leases generally are for 36 months. Tight credit has caused the finance companies of several automakers — notably General Motors and Chrysler LLC — to curtail or stop leasing in the United States. Other major auto lenders have cut back as well. But while lease rates have plummeted for Detroit 3 brands, they have increased for several Japanese brands. Some luxury brands, such as BMW, say they are seeking to trim their lease rates. Rental company links Leases represented 2.0 percent of GM’s retail sales in September, down from 17.3 percent a year earlier, Power says. As a result, Mark Mathews, GM’s director of used-vehicle activities, predicts a “slight decrease” by late 2009 or early 2010 in the number of used vehicles available at auctions open only to GM dealers. GM conducts such closed physical auctions at 40 U.S. locations, Mathews says. GM allows Enterprise Rent-ACar to sell retired rental vehicles at its closed auctions. In 2007, Enterprise sold nearly 7,000 vehicles in closed GM auctions and should exceed that figure this year, Mathews says. GM is negotiating similar arrangements with the Hertz and Avis rental car companies, Mathews adds. Joe Spina, senior remarketing manager at Edmunds.com, says that at least half of certified used vehicles were formerly leased. In the first nine months of 2008, automakers sold 1.3 million certified vehicles in the Unitsee CERTIFIED, Page 38 Leasing ups, downs Leases as percentages of newvehicle sales, selected brands LEASE RATE SEPT. 2008 LEASE RATE SEPT. 2007 BMW Mercedes Subaru Nissan Toyota Ford Saturn Jeep Pontiac Buick 54.1% 40.1 21.5 19.9 12.8 6.4 4.8 2.8 2.6 1.7 67.6% 42.6 15.8 17.9 10.7 14.7 25.0 27.2 26.5 20.1 Source: J.D. Power and Associates, Power Information Network Advantage, Ford: Mulally likes owning Ford Credit Jamie LaReau jlareau@crain.com Still captive? Who owns Detroit 3 captive finance companies Ford Motor Credit: Ford Motor Co. owns 100%. GMAC Financial Services: Cerberus Capital Management owns 51%, GM 49%. Chrysler Financial: It is owned by Chrysler Holding, of which Cerberus owns 80.1% and Daimler 19.9%. er automotive lending companies have reduced their exposure by “tightening their purchase policies,” Ford Credit was “here for you.” GLENN TRIEST Ford CEO Alan Mulally: Divesting noncore brands has freed capacity for Ford Credit to focus on the Ford, Lincoln and Mercury businesses. DETROIT — As its crosstown rivals deal with balky captive finance companies that they no longer control, Ford Motor Co. is pitching its full ownership of Ford Motor Credit Co. as a strategic advantage. Ford Credit has “been through a lot with the world slowing down, and they have restructured aggressively to focus especially on the Ford brand,” Ford CEO Alan Mulally said in an interview last week. “And it’s been helped by us divesting the noncore brands.” That has freed capacity for Ford Credit to focus on the Ford, Lincoln and Mercury businesses, especially in the United States, Mulally said. But he acknowledged that Ford Credit has been challenged as borrowing costs have risen. “With the situation being what it is, it’s hard, but the dealers and the customers say they’re doing a great job during the hardest of times,” Mulally said. Ford Motor Co.’s ownership of Ford Credit enables faster marketing initiatives and more leeway in setting lending criteria, company officials say. On several occasions, Jim Farley, Ford’s group vice president for marketing and communications, has touted Ford Credit’s lending ability, including leasing. On Oct. 15, Ford sent a note to dealers assuring them that Ford Credit was a “strong and supportive finance source.” The letter said that while oth- ‘We have money’ “We have not changed our credit criteria,” says Meredith Libby, a spokeswoman for Ford Credit. “We have money to lend.” Likewise, Ford Credit is working actively with the automaker to keep dealer business, says George Pipas, Ford’s sales analyst. Ford announced a half-point increase in its floorplan rates, which took effect Saturday, Nov. 1, but offers dealers an “earn back” option. That means they won’t pay the half-point if they sell a certain number of vehicles. “We’re not encouraging any of our dealers and our customers to walk to other finance companies,” Pipas says. “If they want financing, Ford has it.” But another source said Ford Cred- it, like its rivals, faces tight access to credit. “There’s an advantage to full ownership, but not a big advantage because the issue is that nobody will loan us money,” says a source close to Ford who asked not to be identified. GM owns 49 percent of its finance company, GMAC Financial Services. The Wall Street firm Cerberus Capital Management LP owns the remaining 51 percent. Chrysler Financial also is controlled by Cerberus. Standard & Poor’s has assigned subinvestment-grade ratings to all three finance arms. Ford Credit and GMAC are rated B- with a credit watch of negative. Chrysler Financial has an S&P rating of CCC+ with a negative outlook — lower than the GMAC and Ford ratings. An edge for Ford “Everyone’s facing a difficult environment with the funding markets the way they are,” says Gregg Lemos Stein, a credit analyst at Standard & Poor’s in New York. “There are some factors that appear to be better for Ford than for the others. Some of the losses on recent securitizations haven’t been as severe for Ford as the other two.” Peter Morici, a business professor at the University of Maryland, says having a wholly owned captive “is useful for moving cars out if you don’t abuse it.” c Amy Wilson contributed to this report China’s stock market plunge has spooked car shoppers sribet@crain.com SHANGHAI — China’s once booming car market has gone flat. It’s a new experience for Ma Xiaochao, 30, sales manager of a Buick dealership here. “Things are a lot worse than they were this time last year,” he says. “I estimate sales are down by roughly one-third.” Sitting in his showroom in central Shanghai, Ma is trying to grasp a new concept: the puzzling beast called consumer confidence. “It’s hard to explain what’s going on,” he says. “But the appetite of folks for buying cars is not the same as it was before. They’re holding on to their money. Even the ones who have it don’t want to spend it.” For years, China has been a beacon of growth for General Motors, Ford Motor Co. and other global automakers. That’s changing now at the worst possible time as the automakers’ home markets implode. Since Ma started work in the late 1990s, passenger-vehicle sales in China have increased an average of more than 30 percent a year. Last year’s growth was a robust 24 percent, according to J.D. Power and Associates. But in July, growth fell to 4 percent from July 2007. In August the market contracted, falling 6 percent from the year-ago month. And September was down 2 percent from September 2007. Stock wealth plummets China’s stock market, which has fallen more than 70 percent since its peak last October, is a prime culprit. “A lot of people have lost money in see CHINA, Page 38 An ad in a Buick showroom in Shanghai promotes credit for financing. STEVEN RIBET Steven Ribet http://www.Edmunds.com

Table of Contents Feed for the Digital Edition of Automotive News - November 3, 2008

Credit? Come and get it, industry groups say GM's product delays signal dire health Ford sticks with small-car plans Mitsubishi CEO: Let's halt Galant production in U.S. A dealer â and his reputation â on the ballot Help vehicles shed pounds American Axle posts loss UAW hires bailout adviser Ford to spend $200 million to upgrade 2 Ky. plants No off-lease cars? Certified will find others Arlena Sawyers China's stock market plunge has spooked car shoppers Advantage, Ford: Mulally likes owning Ford Credit Supplier execs join innovation panel at congress Quietly, Mini seeks 500 drivers to lease electric car for a year Reynolds bolsters document business Winterkorn: Audi needs to build in U.S. The great revenue drop of 2008 Bidders bet they can rebuild Heard 1 size fits all NADA: Give us tax incentives, dealer loan guarantees Campaigns' climate, energy plans hit economic wall Detroit 3 need and deserve U.S. help now Chrysler needs a buyer, but not GM Dealers pay fair share of taxes Washington hurts, not helps, electrics Compressed natural gas is the best fuel New ads aim to raise Suzuki's low profile Suzuki's new ad strategist: This brand has soul Fuel efficiency is coming â it just takes time Electrics edge closer by 2010 Tougher CAFE standards loom R&d chiefs shift gears for an electric future Japan carmakers lead charge into electrics Buffett backs BYD's sketchy plan for U.S. electric car Q&A: BYD envisions 2010 exports to U.S., Europe Girding the power grid for an electric fleet Hype powers plug-in vehicles Coachbuilders see salvation in electric cars Electric vehicles are charging into Europe Expect stop-start's big start to arrive in 2010 Flexibility will help Honda survive the storm Nardelli: Bailout not perfect â but needed Audi goes high-tech to boost service Acura offers quick service to win business Toyota's fashion fan Picture this Hondaâs N.A. operating profit falls 80.6% in quarter Aug. RV shipments fall 44% VW drops hints about car for new Tenn. plant Mexico sales fall 10.7% in September Honda to boost CR-V, end Civic output in Ohio Ford and GM jockey for steel discounts Dealers Ford Credit seeks to tap $700 billion package GM will end a used-car incentive early Nissan, Mitsubishi, Mazda recast fiscal 2009 forecasts Metaldyne to bondholders: Take 30% or Chap. 11 looms Detroit 3 ties hurt profits of dealer groups GM takeover would eviscerate Chrysler ranks, model lineup Mitsubishi plans electric hauler To match Toyota, Nissan offers 0% loans Sticker, sticker at the mall, what's the cheapest of them all? The Versa Waiting is what it's all about, Alfa Buy Chrysler? GM should sell Buick to SAIC Pickups pumped up by pump price plunge Chrysler hybrids, we hardly new ye Ghosn: Your best partner is a president in your pocket Sonic wins, but Mercedes wants last word

Automotive News - November 3, 2008

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