Big 3 finance units top parents' performance

General Motors, Ford Motor Co. and the Chrysler group lost money in the third quarter, but their finance arms fared much better.

Ford Credit, the world’s largest auto finance company, earned $376 million in the third quarter, down 2.5 percent from the year-ago quarter. That was less of a drop than for U.S. light-vehicle sales of Ford and Lincoln Mercury brands, which were off 11.9 percent. Factory-sponsored incentives cut into earnings for the parent company, but those incentives helped Ford Credit competitively.

Ford Credit’s profit came against a $692 million loss for parent Ford Motor Co. That included $190 million worth of one-time items — mostly to write off the value of investments Ford made in e-commerce.

In contrast, General Motors Acceptance Corp. earned a record $437 million in the third quarter, up 9 percent from its year-ago mark. GMAC’s earnings increased despite a 7.8 percent drop in GM vehicles sales for the quarter.

Overall, parent GM lost $368 million for the quarter, including $753 million worth of one-time charges for a plant closing and several items at GM’s Hughes subsidiary. Without the one-time charges, GM earned $385 million.

At rival DaimlerChrysler, net income fell 70.1 percent to $821 million in the third quarter. Excluding one-time effects, net income fell 13.1 percent to $258 million. The Chrysler group had an operating loss of $243 million, compared with a loss of about $527 million in the third quarter of last year.

DaimlerChrysler Services, which includes captive finance operations for the Chrysler group and for Mercedes-Benz USA Inc., had a worldwide operating profit of $127 million.

Excluding one-time effects, the operating profit for Daimler-

Chrysler Services was 87 percent higher than a year ago. Last year’s results included a one-time charge of $450 million for lower resale values for off-lease vehicles.

Financial results for the captive finance companies are an exercise in robbing Peter to pay Paul. Results for the captives are calculated as if they were lending money at market rates, with no such thing as incentives. Parent companies reimburse the captives for the difference. Without that support, the captives probably would be awash in red ink, too.

Here are other highlights from Big 3 finance operations:

  • Rental cars. In March 2001, Ford bought the remaining 18 percent of Hertz it did not already own. Battered by the drop in travel, both before and after Sept. 11, Hertz earnings plunged 81.8 percent to $26 million. Hertz, based in Park Ridge, N.J., buys about two-thirds of the cars in its U.S. fleet from Ford.

    GM and Ford both had lower fleet sales — including rental cars, commercial fleets and government sales — in the quarter. That is good news to a point, since fleet sales are less profitable than retail sales, especially daily rentals. On the other hand, even marginally profitable sales boost production. DaimlerChrysler does not disclose its fleet sales.

  • Lease penetration. Lease penetration was off for Ford Credit and GMAC, in part because of 0 percent loans at the end of the quarter.

    GMAC’s SmartLease program accounted for 12.5 percent of sales in the third quarter, down from 19.4 percent a year earlier. Ford Credit’s Red Carpet Lease program accounted for 18 percent of U.S. Ford and Lincoln Mercury sales in the third quarter, compared with 21 percent a year ago.

    GM launched 0 percent loans Sept. 19, and Ford followed suit the next day. DaimlerChrysler jumped on the bandwagon Sept. 25, so its 0 percent incentives had almost no effect on third-quarter results.

    Before Sept. 11, auto lenders were already trying to reduce their dependence on leasing because of residual losses.

  • Cost of borrowing. Lower borrowing costs were a silver lining for Ford and GM. Ford Credit said its cost of funds was down to 5.9 percent in the third quarter, compared with 6.2 percent in the second quarter and 6.5 percent a year ago. That helped mitigate the cost of zero-interest incentives.

    GMAC’s cost of borrowing was down to 5.04 percent in the third quarter, compared with 5.9 percent in the second quarter and 6.8 percent a year earlier.

    DaimlerChrysler Services does not report its cost of funds.

    Standard & Poor’s Ratings Group in New York announced this month that it will downgrade Ford and GM and possibly DaimlerChrysler, and that will probably raise the cost of funds.

  • You can reach Jim Henry at autonews@crain.com

    0

    Shares

    ATTENTION COMMENTERS: Over the last few months, Automotive News has monitored a significant increase in the number of personal attacks and abusive comments on our site. We encourage our readers to voice their opinions and argue their points. We expect disagreement. We do not expect our readers to turn on each other. We will be aggressively deleting all comments that personally attack another poster, or an article author, even if the comment is otherwise a well-argued observation. If we see repeated behavior, we will ban the commenter. Please help us maintain a civil level of discourse.

    Newsletters