Captives make best partners, auto chiefs say

NEW YORK -- An independent finance source is no substitute for a wholly owned captive finance company, U.S. auto chiefs say.

Panelists at an industry conference last week avoided naming names but left no doubt that GMAC Financial Service's virtual shutdown in late 2008 illustrated the need to have a totally dependable finance source.

"If you're in the automobile manufacturing business, you need an alliance with a finance company," said Mike Jackson, CEO of AutoNation Inc., the largest U.S. auto retail group, speaking at a forum sponsored by IHS Global Insight and the National Automobile Dealers Association.

For "everyone up here today, their finance company proved to be a strength" in the latest sales downturn, Jackson said, referring to fellow panelists from BMW, Honda, Toyota and Volkswagen. Ford Credit also got some approving remarks.

"Certain captives," which Jackson did not name, bailed out of the market, and some banks, he said, put a strict limit on the amount they would lend. Once a bank reached its quota, Jackson said, "The Lord Above could come in for a loan and He would be turned down."

Dealers also found themselves in the lurch on floorplan loans to support their inventories, said John Mendel, executive vice president of sales at American Honda Motor Co. He said Honda Financial Services took over floorplanning last year for 96 dealers who got "go away" letters, presumably from Chrysler and GM.

Chrysler's crunch

Chrysler Financial was the first captive publicly to hit the wall in the credit crunch, quitting leasing in August 2008.

Since then, the company has continued to offer loans, but its business shrank as former parent Chrysler began funneling its factory incentives through GMAC in April 2009.

Meanwhile, GMAC in effect became independent in late 2006, when parent General Motors sold a majority share to Cerberus Capital Management. At the time, Cerberus also controlled Chrysler and Chrysler Financial.

As part of a U.S. government bailout, GM and Cerberus gave up control of GMAC, and the finance company became a bank holding company at the end of 2008.

GMAC quit leasing last that year and cut way back on loans. Its market share in loans has begun to rebound, and GMAC started leasing again in summer 2009, but the lender says it intends to keep its lease business at no more than 10 percent of its total.

Panelists Mark Barnes, COO of Volkswagen of America; Jim O'Donnell, president of BMW of North America; and Jim Lentz, COO of Toyota Motor Sales U.S.A., said in effect that they couldn't do without their respective captive finance companies.

Said Barnes: VW Credit Inc. "stayed with us through those tough times. They were very valuable to us."

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