Whitacre needs a captive

Peter Brown is publisher and editorial director of Automotive News.
The car business is different.

Ed Whitacre is taking some gas for wanting General Motors to have a captive finance company. In this morning’s New York Times an unnamed pundit accuses the chairman/CEO of “empire building” and trying to return GM to its bad old ways by getting back into the finance business.

This might be a valid criticism if we were talking about, say, the candy industry, where a finance company would be diversification.

But finance is inextricably bound to the car business. A car company needs some control over how deeply a finance company buys for its retail customers, and over whether a dealer gets floorplanning. And a captive finance company can also capture a lot of the profit that goes along with manufacturing and selling cars.

Not long ago I asked a wise retired Ford executive how he rated Ford CEO Alan Mulally. I said I was somewhat surprised at how well the Boeing exec took to the car business.

“Well,” said the retired exec, “Alan came from a company that designs, engineers, manufactures, markets, sells and finances a product.”

Ah-hah! Financing is central.

The car business is different from a candy company. And Whitacre is not empire building when he wants to bring that function back to GM. He’s making GM whole.

Whitacre may or may not yet understand everything about running a car company, but he has figured out that a big car company without a reliable financing source is fighting with one hand tied behind its back.