Does a car company still need a captive finance company for when the chips are down?
Standard & Poor's Ratings Services always thought so, says Robert Schulz, managing director. But maybe the need isn't so clear cut, he says.
"If you go back a few years, having a captive finance company was important in a downturn for when the banks pull back," he said at last week's Auto Industry Hot Topics Conferencecq in New York. But today, at least so far, he said, the lack of one "hasn't really been a negative issue."
Dealers who survived the last sales downturn would probably disagree. So would Ford, which relies on Ford Credit. But the Chrysler Group seems to be doing OK with Ally Financial, instead of a captive finance subsidiary. Chase Auto Finance also serves several automotive brands.
Keep in mind that S&P's primary interest in captives is whether they are creditworthy, and what impact they have on the creditworthiness of their parent companies. That's different than the point of view of dealers and the car companies, which see the captives primarily as a way to help sell cars.
Who's right? Maybe there's middle ground. GM uses Ally, but it also is turning GM Financial, the former subprime specialist AmeriCredit, into a full-service lender. GM has said, though, that it's not going to turn GM Financial into a giant like the former GMAC.
"Long term, we think of a captive as a positive for the parent being able to get financing," Schulz said. "But we're a little bit surprised the lack of a captive hasn't been a drag on the parent companies."