Are captives a must?

Jim Henry is a special correspondent for Automotive News

A car company and its dealers need a captive finance company, period, says Ford CFO Lewis Booth.

True, captives can’t use funds from customer deposits to make auto loans cheaply as banks, including Ally Financial, can.

But when the chips are down, there’s no substitute for a captive, Booth said last week at a Society of Automotive Analysts event in New York.

“In the depths of 2008 and 2009, that’s when we saw the value” of Ford Credit, he said. “We saw some significant gains with regard to some of our competitors who had lost control of their finance companies.”

GM apparently agrees control is crucial. In addition to its relationship with Ally, GM is beefing up its GM Financial subsidiary as a full-service lender of last resort.

So is a captive a “must”? Let’s just hope it’s a long time before another emergency shows how handy a captive comes in.

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