Automotive News - January 28, 2008 - (Page 55) JANUARY 28, 2008 • 55 NHTSA bolsters roof proposal WASHINGTON — The federal government is trying again to update a controversial vehicle safety regulation: the standard for roof strength, which essentially has remained unchanged since 1971. Last week regulators issued a revised version of a proposed rewrite first issued in 2005. The proposal would require both sides of a vehicle roof to support at least 2½ times the vehicle’s weight, the National Highway Traffic Safety Administration said. The current standard requires one side of the roof to support at least 1½ times the vehicle weight. Fed’s cut helps dealers, not buyers (yet) Donna Harris dharris@crain.com Neapco becomes a Tier 1 DETROIT — Neapco Drivelines LLC has become a Tier 1 supplier with its purchase of the driveshaft manufacturing operations of Automotive Components Holdings LLC. Terms were not disclosed. Neapco has been a Tier 2 and Tier 3 supplier, selling components such as steering shafts for Class 8 trucks. Driveshaft production will be transferred from Automotive Components Holdings’ plant in Monroe, Mich., to a Neapco plant being built in suburban Detroit. Automotive Components Holdings is a unit of Ford Motor Co. that was created to sell or close parts operations that Ford took back from troubled Visteon Corp. in 2005. Auto dealers can expect lower inventory costs because of last week’s emergency interest rate cut by the Federal Reserve, economists predict. But they say the 0.75 percentage point reduction in the Fed’s main interest rate target — and another anticipated cut this week — likely will have little immediate impact on rates for consumer vehicle loans. The rate reduction could help the economy escape recession, economists say. It helped spur a rebound last week in the stock prices of public dealership groups, all of which traded at 52-week lows this month. Most dealers finance vehicle inventories through automakers’ captive finance companies. The captives charge interest rates tied to the prime rate, which commercial banks charge their most creditworthy borrowers. The prime rate dropped last week from 7.25 percent to 6.50 percent, according to the financial Web site Bankrate.com. Fed fallout Auto industry analysts cite these likely effects of the Fed’s decision to cut interest rates. Dealer floorplan interest rates drop Stock prices of public dealership groups rebound Little immediate impact on vehicle loan rates Little or no impact on sales of cars and trucks company of Chase Auto Finance. “But rates on consumer loans move like a snail,” Glassman told Automotive News. The average dealership’s inventory finance cost per new vehicle rose from $87 in 2005 to $173 in 2006, the National Automobile Dealers Association says. NADA has not calculated a 2007 figure, but NADA chief economist Paul Taylor says floorplan costs dipped slightly last year. From 2002 through 2004, NADA says, the average dealership had a credit balance in its floorplan account. Because of brisk sales and low interest rates, factory incentives on new-vehicle inventory offset floorplan interest costs. The Fed’s rate cut should stimulate Ford CEO Alan Mulally: The Fed’s rate cut is “a very positive thing for all of us.” a healthy decline in floorplan costs this year, Taylor says. Large dealership groups often negotiate floorplan rates tied to the London Interbank Offered Rate, or LIBOR. That interest rate reflects what global banks charge each other for loans. “LIBOR is slowly coming down, too,” said economist Glassman. David Cosper, CFO of Sonic Automotive Inc., says he expects the Fed rate cut to benefit the publicly held dealership group. “Assuming the rate cut flows through to LIBOR, that should be a couple million dollars of good news for us on a full-year basis,” says Cosper, a former Ford Motor Credit executive. Prime changes fast “When the Fed reduces the federal funds rate, there’s an automatic reduction in the prime rate,” said Jim Glassman, chief economist for JP Morgan Chase and Co., the parent Less consumer impact Bankrate.com says the Fed’s rate cut has shaved only one or two basis points from interest rates on new-vehicle loans and two to five basis points from used-vehicle loan rates. A basis point is one one-hundredth of a percentage point. Last week, AmeriCredit Corp., a vehicle lender specializing in nonprime loans, reported a loss in its second fiscal quarter. AmeriCredit CFO Chris Choate says the Fed rate cut reduced the company’s cost of funds by 20 basis points. To become profitable, Choate says AmeriCredit needs to retain those savings rather than pass them along to loan customers. The company is cutting its loan volume, he adds. The credit crunch generally has made auto lenders cautious, says Dana Johnson, chief economist for Comerica Bank in Detroit. But Johnson says he expects creditworthy consumers to benefit from vehicle discounting this year. Industry executives say they do not look for the Fed’s rate cut to boost overall U.S. new-vehicle sales in 2008. Those sales are expected to decline from the 2007 total of 16.2 million units. Ford Motor Co. CEO Alan Mulally calls the Fed’s “decisive” rate cut “a very positive thing for all of us.” But he says the company is sticking to its 2008 forecast of 15.7 million light-vehicle sales. c Amy Wilson contributed to this report OUTPUT Detroit 3 will slash 2nd-qtr. production continued from Page 1 Cut, and cut again The latest production plans mean more pain ahead for the Detroit 3. Q2 ’08 Q2 ’07 % CHANGE whopping 11.0 percent. Nissan is getting a boost from strong sales of the subcompact Versa and the Altima sedan. Mich. attorney general: CO2 rules threaten auto jobs WASHINGTON — If states impose their own greenhouse gas rules, more U.S. auto industry jobs will disappear, Michigan Attorney General Mike Cox told a congressional committee last week. That would mean more economic trouble for his struggling state, said Cox, a Republican. Democrats who control the committee were not receptive to Cox’s arguments. Sen. Barbara Boxer of California, the panel’s chairwoman, has vowed that a decision by the EPA that denies states authority for vehicle greenhouse gas rules “will not stand.” Hitting bottom The Detroit 3’s combined output will level off in the third quarter, predicts Joe Langley, CSM senior market analyst for North American forecasts. Langley expects an upturn for Ford and GM in the fourth quarter, with production edging ahead of year-ago levels. Ford is rolling out the Lincoln MKS sedan this spring, the Flex crossover in the summer and the F-series pickup in the fall. The Focus compact already is producing solid sales after its launch last autumn, Langley noted. “Hopefully, they’ll reach the floor and begin to crawl out in the second half of the year and beyond,” Langley said. GM Ford Chrysler Toyota Honda Nissan Other TOTAL Source: CSM Worldwide 1,034,000 680,000 578,000 453,000 377,000 311,000 336,000 3,770,000 1,125,000 812,000 715,000 440,000 370,000 280,000 319,000 4,061,000 –8.1 –16.3 –19.1 3.1 1.9 11.0 5.3 –7.2 But Chrysler is iffy. Although it is introducing a redesigned Dodge Ram pickup, the new Journey crossover and the Challenger coupe, many of Chrysler’s older models are selling poorly. So Langley doesn’t think Chrysler’s turnaround will come until 2009. Chrysler is acting accordingly. Since November, the company has dropped shifts at five plants. It expects relatively weak industry sales of 15.5 million units this year, down from 16.2 million in 2007. “We build to market demand and anticipate a tough environment for 2008,” says spokeswoman Michele Tinson. Too many pickups? Ford and Chrysler must restrain production of current-generation big pickups before switching production to the new F series and Ram, says Erich Merkle, vice president of forecasting for IRN Inc. in Grand Rapids, Mich. Neither automaker wants to clog dealer lots this summer with ’08 models, forcing an everything-mustgo sale to make room for the new trucks, Merkle says. Those trucks represent nearly 30 percent of sales for each automaker. Merkle expects overall North American production to fall to 14.3 million light vehicles this year, down 5 percent from 15.1 million units in 2007. He made those projections before the Federal Reserve slashed interest rates, but Merkle is sticking with his forecast. The Detroit 3 “want to keep inventories tight,” he says. Unlike the Detroit 3, the Japanese automakers have a production safety valve. For some mass-market vehicles, they can trim imports before cutting North American production. That may not even be necessary if they continue to grab market share from the Detroit 3. Among the other North American producers, BMW will account for much of their cumulative 5.3 percent second-quarter production increase. Says Merkle: “They can’t make enough of the X5” crossover. c Mitsubishi hires Koenig LOS ANGELES — Mitsubishi Motors North America has hired retired Toyota executive John Koenig for the new position of executive vice president and executive adviser to CEO Hiroshi Harunari, starting Feb. 4. Company spokesman Dan Irvin did not have details on Koenig’s job. Koenig, 61, was most recently vice president of sales and marketing at auto supplier Aisin World Corp. of America. He worked 24 years at Toyota Motor Sales U.S.A. Inc. and retired from Toyota in 2001 as vice president of Toyota Material Handling U.S.A. CHRYSLER Product teams take a page from the past continued from Page 3 ning process. “This will not be just a North American car. They have to sell these cars to Asia and Europe.” Cutting cost was the primary goal of the Sebring team, the source said: “Each little silo did its own thing, but nobody is happy with the result.” Back in the 1990s, Chrysler was an industry leader in cross-functional prod- uct teams. In that era, executives such as Bob Lutz, Tom Stallkamp and Francois Castaing made Chrysler the most nimble of Detroit’s three carmakers. It’s a process detailed in Lut http://Bankrate.com http://Bankrate.com
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