Despite their early resistance to the formation of publicly traded dealer groups, captive finance arms of the biggest automakers are moving into the business of underwriting the big groups' acquisitions.
Ford Motor Credit Co., for example, has emerged as the leader in providing the big lines of credit that the multibillion-dollar chains require. Four years ago, Ford Motor Co. was the last major automaker to approve dealer agreements for the publicly traded chains.
In at least one loan agreement - with Sonic Automotive Inc. of Charlotte, N.C. - rivals Ford Credit and DaimlerChrysler Financial Services share the group's business in a syndicatelike arrangement that reduces each lender's risk.
General Motors Acceptance Corp. and Toyota Motor Credit Corp. also have expressed interest in lending to the big groups.
The change of heart toward the public chains reflects three factors:
1. Relations have matured between the factories and the biggest megadealers. 'People are reconciled to the fact that we are not some sort of evil invaders,' said Brian Kendrick, president and CEO of Asbury Automotive.
2. The public chains have found that raising money in the public markets is a lot harder than when dealership initial public offerings were in fashion. The chains are turning to the captives out of necessity because banks and other investors are less interested. 'We're in it for the long haul, whereas banks may not be able to make that claim,' said Richard Van Leeuwen, Ford Credit senior vice president for major accounts.
3. In the long run, the captives also have an interest in the big chains. After all, they are the captives' core customers, only bigger. Plus, the factories have come out in favor of consolidating dealers in the last few years. In a way, the megadealers are doing it for them.
`Not a threat to captives'
'We simply are not a threat to the captives. Our interests are totally aligned. Our business is selling cars,' Kendrick said.
'It's just like Wal-Mart. If we can reduce costs and introduce efficiencies and increase satisfaction for the customer, than the manufacturer wins, too.'
Asbury, in Stamford, Conn., is privately held. It is the nation's second-largest dealer chain, after AutoNation Inc., according to the Automotive News list of the Top 100 U.S. Dealership Groups. It has 85 dealerships with estimated revenue for 2000 at around $5.2 billion.
Ford Credit is one of Asbury's leading lenders for acquisitions and other corporate purposes. In separate interviews, neither Kendrick nor Van Leeuwen would disclose the amount.
Separately, Ford Credit also has a $115 million line of credit for Lithia Motors Inc. of Medford, Ore., to purchase dealerships of any brand. Lithia is the No. 10 U.S. chain.
UnitedAuto Group in New York is negotiating a boost in its borrowing power for acquisitions from $390 million to about $640 million. DaimlerChrysler Financial Services is the agent for 'various institutions,' said Jim Davidson, executive vice president of finance. UnitedAuto is the No. 3 U.S. dealership group.
Sonic ranks 5th
In August, Sonic Automotive replaced its $350 million acquisition line of credit with Ford Credit with a $500 million agreement shared between Ford Credit and DaimlerChrysler Financial, according to Securities and Exchange Commission documents. Sonic is the nation's No. 5 dealer group.
Van Leeuwen said the Sonic syndicate is the only such syndicate among the captives, so far.
'We have others we're working on,' Van Leeuwen said, without naming names. 'There probably are only two or three (chains) where a syndicate is required ... because of the sheer size of the loans.'
AutoNation Inc., the biggest U.S. chain, does not borrow from the captives for acquisitions, a spokesman said. Neither does Group 1 Automotive Inc. in Houston, the seventh-largest U.S. dealer group.
Tom Brubaker, national accounts development manager for Toyota Motor Credit Corp., said his firm is interested in the concept of a syndicate with other captives, but said Toyota Credit has no such deals so far.
'We are not opposed to it. We're certainly interested,' he said.
Van Leeuwen downplayed the significance of Ford Credit's effort to capture a greater share of the megadealer business, even though Greg Smith, president of Ford Credit North America, described the effort as a 'major initiative,' in a separate interview in October.
Said Van Leeuwen: 'We have products for all dealers, big and small, to support our dealer body.'