Automotive News - July 28, 2008 - (Page 34) 34 • JULY 28, 2008 MULALLY Ford speeds shift to small cars continued from Page 3 Ford Credit takes a hit as truck values fall Arlena Sawyers asawyers@crain.com New mix Ford projects that its North American sales mix will change from mostly trucks for 2007 … small vehicles to the United States. For now, the new cars aren’t coming fast enough. With special charges largely to write down the value of Ford’s big truck assets, the automaker lost $8.7 billion in the second quarter, the worst quarterly loss in its 105-year history. The company has abandoned its goal of returning to profitability in 2009, and Mulally now won’t predict when Ford could start making money again. “When we started to see that rapid movement by the consumers from the bigger trucks and SUVs over to cars, we decided then, with what we think about fuel prices going forward staying up relatively higher, that it was time to aggressively accelerate our transformation,” Mulally said last week. “But the neat thing is we have these assets worldwide, so we have the ability to accelerate it.” Plunging values of big pickups and SUVs are battering the lease portfolio of Ford Motor Co.’s captive finance unit. Ford Motor Credit Co. said last week it took a $2.1 billion pretax charge in the second quarter of 2008. The charge will compensate for declines in the expected worth of full-sized trucks when they come off lease and return to the market, company officials said. U.S. consumers have turned away from full-sized trucks as gasoline prices have soared in recent months. That shift is depressing auction prices for large used SUVs and pickups, Peter Daniel, Ford Credit senior vice president, said last week. “Ford Credit reviewed its U.S. and Canada operating lease portfolio and determined that leaseend residual values would be significantly lower than previously expected, resulting in an impairment,” Daniel told industry analysts during an earnings call. In addition, as residual values drop, finance companies such as Ford Credit must spend more to subsidize lease customers’ monthly payments. Overall, Ford Credit reported a net loss of nearly $1.43 billion in the second quarter of 2008, down from net income of $62 million in the year-ago quarter. The captive said it also lost money on repossessed vehicles it remarketed and on loan delinquencies. Ford Credit CFO K.R. Kent said the company expects to lose money in the second half of the year. c 30% Car 18% Crossover 52% Truck … to only 38% trucks by 2013. 38% Car 38% Truck What’s new Ford now expects the percentage of pickups and SUVs in its U.S. product mix to drop from 52 percent in 2007 to 38 percent in 2013 as more cars and crossovers arrive (see charts, at right). Several product details announced last week had been in the automaker’s plan. Ford already had decided to bring in the subcompact Ford Fiesta in early 2010 and new hybrids for 2009, to bring the European version of the Focus to the United States and to introduce additional but unspecified C-segment vehicles. But the dramatic drop in truck sales in May and June meant Ford needed to do more. In what Mulally calls the “ultimate working together,” he called his team into meetings every day, sometimes twice a day. The result is a plan to: Put even more small cars in the mix; Ford has confirmed at least four plants will make subcompact and compact cars in North America by early next decade. New C-segment variants were added to the plan in re- cent weeks, Kuzak said. Give one of those small cars to Mercury and recommit to the brand. (See related story, Page 3.) Double four-cylinder engine production. Make sure retooled plants are flexible enough to switch quickly between different-sized vehicles or, in the case of engine plants, small and big engines. Speed the consolidation of Ford’s U.S. dealership network. 24% Crossover Source: Ford Motor Co. Ford executives say new flexible plants will give them the ability to adjust if gasoline prices fall. But they’re not counting on that happening. Said Mulally: “We’ve really adopted a point of view that, over the long term, fuel prices are going to stay relatively higher.” c ■ 100 years of the Tin Lizzie More than 1,000 Model T enthusiasts celebrated the car’s 100th anniversary last week in Richmond, Ind., at “T Party 2008,” a weeklong bash hosted by the Model T Ford Club of America. Left, Edsel Ford II, in the front passenger seat, and his son, Henry Ford III, in the rear seat, get a ride in a Model T from Jay Klehfoth, CEO of the Model T Ford Club of America, and his wife, Barbara. Above, Mark Fields, Ford Motor Co.’s president of the Americas, answers media questions after his presentation. LAWSUIT Sonic, Mercedes dispute store rules continued from Page 8 on a buyer’s willingness to build or renovate a dealership. Issues in other states Most other states have laws similar to North Carolina’s, says Jim Moors, franchise attorney for the National Automobile Dealers Association. “Nearly every state addresses this,” Moors told Automotive News. “Many say that a manufacturer may not un- ness experience or financial resources. The state law also says an automaker can’t condition a dealership sale reasonably withhold consent” to a dealership purchase. If Sonic overturns the Mercedes framework agreement, “each new application will stand on its own,” says Mike Charapp, president of the National Association of Dealer Counsel. Tom Butler, a partner with the dealership brokerage Bel Air Partners, says a factory restriction on large re- tailers “hurts the individual dealers because it keeps public companies from being able to acquire their dealerships.” “If Sonic is successful in blowing out the framework agreement, it will have a major impact on acquisitions,” says Butler, a former executive with AutoNation Inc., the largest U.S. auto retailer. “These facilities requirements are getting out of control.” But Mark Johnson, a dealership broker in Seattle, says Sonic could face unintended consequences if a court tosses its framework agreement with Mercedes. “A framework agreement sets the ground rules,” Johnson says. Without such contracts, he warns, large retailers “will find themselves battling the manufacturers at every turn. You will see a ton of litigation.” c DECISION Most early choosers stay with Reynolds continued from Page 4 ers had made a decision. Of those, about 90 percent decided to remain with Reynolds, said Tom Schwartz, a Reynolds spokesman. The GM dealers leaving Reynolds have been primarily smaller, single-point dealers, he said. Almost half of the 400 dealers have made a decision, Marty Raymond, GM’s director of global retail programs, said Thursday, July 24. Of those, 23 percent are staying with the GM program through a new vendor and 77 percent are staying with Reynolds, he said. “Balancing the pain of change with the desire to keep the benefits of” the GM program, Raymond said, “we thought that we would get north of 20 percent that would switch” to a new vendor. GM has endorsed Quorum, AutoSoft International Inc., Arkona Inc. and ADP Dealer Services as Integrated Dealer Management System vendors. Dealers like the GM program for its flexibility of month-to-month contracts, the 30 days’ notice to cancel the contract, value pricing negotiated by GM and no price increases through 2012. Dealers who choose to leave Reynolds will have six months to convert to whatever system they choose. “It wasn’t our decision alone because we’re in the middle of a buysell,” Pfeffer says. “We were happy that they did decide to stay with Reynolds.” The Frahm dealership’s decision to remain with Reynolds came after extensive research by the dealership and its potential new owners — and some arm-twisting by GM. “We got a lot of letters and a follow- up phone call from GM, which I have to admit surprised me a little bit,” Pfeffer says. “But they always explained our options and that we didn’t have to stay with the IDMS program. But they’d love us to remain.” The dealership’s nearly 20-year history with Reynolds played into the decision. The Frahm dealership now has a three-year contract with Reynolds, she says, “So if they change their products, we’ll be able to reevaluate that in three years.” c
Table of Contents Feed for the Digital Edition of Automotive News - July 28, 2008 Automotive News - July 28, 2008 A scared-stiff industry stomps on the brakes No-lease edict stuns Chrysler dealers Hummer: Bonuses, buyouts Amid the gloom, Mercury celebrates Ford banks on Mulally's small-car plan PACE awards open for innovative suppliers GM expands employee discount plan through July American Axle blames strike for big quarterly loss Mercedes expects U.S. sales to fall; B class may come in 2011 Chevy plans new U.S. subcompact by '11 GM or Reynolds? Dealers must decide now Ralph Kisiel Ghosn: It's wrong time for a new partner GM geniuses turned their auto dreams into realities Dealers fresh out of Mini Coopers Chrysler, Ford, Honda top NAACP report card GM alters bonus for dealers who outperform their region Automakers angle for Chrysler's idle engine plant Chrysler revokes franchises in Pa. Sonic-Mercedes case could allow big dealers to add stores Buick's new LaCrosse It's still true: Product is king Still a bad idea NHTSA's Nason is leaving some big jobs undone Don't advertise them until they're on sale Safety matters much more than mpg Chrysler's no 'fuel economy laggard' $4 gas won't turn the U.S. into Europe For Europeans, America still spells opportunity Challenges travel with OnStar to China Personnel Mexico sales rise 1.2% in June Picture this Europe's worst sales result? Toyota Kia spends big to launch Borrego Kia launches Borrego just as SUVs lose favor Detroit 3: Goodbye, bailouts Dealers Eaton: Supercharger sales will grow Fla. appeals panel overturns class status in Kia brake suit Audi certified push pays off Used-car rule goes to the shop for tuneup Big-truck prices take a tumble in June Automaker tax break piggybacks on mortgage bill Honda rides high in 2nd-quarter rankings Ford Credit takes a hit as truck values fall 100 years of the Tin Lizzie Lamborghini profit soars AutoNation net income falls GM names CFO for N.A. TI Automotive unit will move Mercedes to cut Ala. production Fleming was a consummate newspaperman Toyota plans to raise Prius output A dart for Smart Tesla gets good reviews at Bentley 422 hp — and, uh, easy at the pump Ford's 2nd qtr: The reddest ink ever Bill Gates joins the car-dealer club Detroit 3 should put Mini under the microscope What's a Gov. to drive? Automotive News - July 28, 2008 Automotive News - July 28, 2008 - Hummer: Bonuses, buyouts (Page 1) Automotive News - July 28, 2008 - Hummer: Bonuses, buyouts (Page 2) Automotive News - July 28, 2008 - American Axle blames strike for big quarterly loss (Page 3) Automotive News - July 28, 2008 - GM or Reynolds? Dealers must decide now Ralph Kisiel (Page 4) Automotive News - July 28, 2008 - GM or Reynolds? Dealers must decide now Ralph Kisiel (Page 5) Automotive News - July 28, 2008 - GM alters bonus for dealers who outperform their region (Page 6) Automotive News - July 28, 2008 - GM alters bonus for dealers who outperform their region (Page 7) Automotive News - July 28, 2008 - Buick's new LaCrosse (Page 8) Automotive News - July 28, 2008 - Buick's new LaCrosse (Page 9) Automotive News - July 28, 2008 - Buick's new LaCrosse (Page 10) Automotive News - July 28, 2008 - Buick's new LaCrosse (Page 11) Automotive News - July 28, 2008 - Chrysler's no 'fuel economy laggard' (Page 12) Automotive News - July 28, 2008 - Chrysler's no 'fuel economy laggard' (Page 13) Automotive News - July 28, 2008 - For Europeans, America still spells opportunity (Page 14) Automotive News - July 28, 2008 - For Europeans, America still spells opportunity (Page 15) Automotive News - July 28, 2008 - Personnel (Page 16) Automotive News - July 28, 2008 - Personnel (Page 17) Automotive News - July 28, 2008 - Picture this (Page 18) Automotive News - July 28, 2008 - Picture this (Page 19) Automotive News - July 28, 2008 - Europe's worst sales result? Toyota (Page 20) Automotive News - July 28, 2008 - Europe's worst sales result? Toyota (Page 21) Automotive News - July 28, 2008 - Detroit 3: Goodbye, bailouts (Page 22) Automotive News - July 28, 2008 - Dealers (Page 23) Automotive News - July 28, 2008 - Fla. appeals panel overturns class status in Kia brake suit (Page 24) Automotive News - July 28, 2008 - Fla. appeals panel overturns class status in Kia brake suit (Page 25) Automotive News - July 28, 2008 - Big-truck prices take a tumble in June (Page 26) Automotive News - July 28, 2008 - Big-truck prices take a tumble in June (Page 27) Automotive News - July 28, 2008 - Big-truck prices take a tumble in June (Page 28) Automotive News - July 28, 2008 - Big-truck prices take a tumble in June (Page 29) Automotive News - July 28, 2008 - Big-truck prices take a tumble in June (Page 30) Automotive News - July 28, 2008 - Big-truck prices take a tumble in June (Page 31) Automotive News - July 28, 2008 - Big-truck prices take a tumble in June (Page 32) Automotive News - July 28, 2008 - Honda rides high in 2nd-quarter rankings (Page 33) Automotive News - July 28, 2008 - 100 years of the Tin Lizzie (Page 34) Automotive News - July 28, 2008 - Mercedes to cut Ala. production (Page 35) Automotive News - July 28, 2008 - Toyota plans to raise Prius output (Page 36) Automotive News - July 28, 2008 - Toyota plans to raise Prius output (Page 37) Automotive News - July 28, 2008 - What's a Gov. to drive? (Page 38) Automotive News - July 28, 2008 - What's a Gov. to drive? (Page 39) Automotive News - July 28, 2008 - What's a Gov. to drive? (Page 40) Automotive News - July 28, 2008 - What's a Gov. to drive? (Page 41) Automotive News - July 28, 2008 - What's a Gov. to drive? (Page 42)
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