Autoblog

Soaked in bad news, GM and Ford received yet another dousing when their three big European credit insurers dropped them this week. Euler Hermes, Atradius, and Coface have all refused to write policies for suppliers trading with both automakers. The three giant insurance companies control more than 80 percent of the world's credit insurance (insurance companies typically pull their coverage when a client stops proving insurers with enough information to calculate a credit risk, or their overall risk profile has deteriorated). Without their credit cover, suppliers will be forced to either trade uninsured, cease trading, or ask for payment up front. Supply issues aside, this news only compounds the automaker's problems as it also weakens investor confidence, already completely slumped.

[Source: FT, free subs. req'd]

Less than 2 months ago the headline here was GM ramps up Cobalt production to meet demand. It's amazing how quickly things change in this crazy environment. Just months after adding a third shift at the Lordstown, OH assembly plant where the Chevy Cobalt and Pontiac G5 are built, on Friday GM gave 1,100 employees at the facility layoff notices. The company isn't getting rid of the third shift but, it is slowing the build rate in line with current sales demand. Earlier this summer, GM was selling Cobalts as fast as they could build them and now all of a sudden, those sales have dried up. The spike was triggered by $4 gasoline, and even though gas prices have dropped to half that level, you might not expect sales to fall so fast. The real problem is the lack of available credit for financing. Most of the inherent customer base for cars like the Cobalt simply can't afford to pay cash for a new car. With credit increasingly hard to get, car sales have crashed almost across the board in October. Even the Honda Civic that sold 53,000 copies in May got just under 19,800 in October. Expect to hear more about slowdowns at other carmakers, including mighty Toyota and Honda, very soon.

[Source: Vindy.com]

After announcing earlier this week that GMAC would only finance customers who hold credit scores higher than 700, General Motors has decided it would be prudent to reassure consumers that they are still in the business of securing loans and selling vehicles. Starting Friday, GM will launch a "Financing That Fits" campaign on a national level. Through advertising on television, newspaper, radio, and the Internet, GM will promote dealer financing with GMAC Financial Services and, for the first time, with other lenders. To further restore consumer confidence, the ads are also designed to promote the experience and expertise of the dealership professionals who work in finance and insurance. The economy has taken a serious toll on GM's showroom traffic over the past few weeks, and the announcement Monday of stricter lending policies dried up business even further. The automaker is hopeful that its new ad campaign, and cash-back deals of up to $6,000 on every 2008 vehicle left in stock, will bring them back in.

[Source: Automotive News, subs. req'd]

The auto industry is in a bad sales slump, and while trucks and SUVs are being hurt particularly by fuel prices, the rest of the market has an even bigger problem. The tight credit market is making it much harder for dealers to sell you transportation, and the problem isn't relegated to just those with poor credit. Banks want higher cash-to-debt ratios, larger down payments, and then they're still charging higher interest rates on top of all that. GM's Mark LaNeve estimates his company is losing between 10,000 and 12,000 sales per month due to the credit crunch, which is close to a full point of market share.

Chrysler dealers are likely struggling even more, as the Pentastar recently removed company-financed leasing as a fall back option for those who cannot afford to buy. Chrysler's sales have been down 34% this year through August, and leasing went from 23.5% of the business to just 2%. With the latest rash of bad news hitting the banking industry in the U.S., we don't expect this trend to reverse itself any time soon.

[Source: Automotive News, sub. req'd, photo by BookMama | CC 2.0]

We knew last month that the Jetta TDI was qualified for the tax credit. Now, word is out that all of the new-generation clean diesels for Volkswagen (TDI) and Mercedes-Benz (Bluetec) will be joining the elite handful of vehicles that qualify for a federal alternative-powertrain tax credit. Formerly reserved for just hybrid vehicles, the diesels have been designated as advanced lean-burn-technology vehicles that meet the Alternative Motor Vehicle Credit standards of the IRS. The credits vary based on the vehicle. In the case of Mercedes, the ML320 qualifies for $900 while the GL320 is good for $1,800. If diesel still isn't your thing, the IRS has also qualified several Ford hybrids as eligible too. Of those, the highest credit (a sweet $3,000) goes to those consumers who take home an Escape or Mariner two-wheel drive hybrid crossover.

[Source: Automotive News, subs. req'd]

Cerberus Capital Management shot off a nine-page letter to investors outlining ways that Chrysler could sink, while also pointing out that they believe Chrysler's on the track for success. Some of the possible failure scenarios include a nasty recession, an extreme slowdown in the car market, or a further credit downturn. Credit is already looking green around the gills, and the potential for a widespread domino effect that starts with an implosion of the teetering mortgage business would be catastrophic for Chrysler Financial and GMAC, of which Cerberus owns 51 percent. As easy mortgages and equity go, so goes willy-nilly new car purchasing, and we're probably already seeing the results of that adjustment. Cerberus believes that it can weather a mild credit downturn, and even a mild recession, just fine.

One way to attain success is to declare it, and changing the definition doesn't hurt, either. Cerberus optimistically declares that there's no need to be heroes to earn a good return on their investment. It sounds a little bit like they're saying it's okay to tread water. Stating that it's not necessary to build Chrysler up, even though that's the underlying hope, Cerberus thinks that just hanging in there should be good enough to earn a return. All of Chrysler's employees must feel great knowing that Bob Nardelli, Jim Press, and Tom LaSorda can essentially just keep the company coasting along until Cerberus sells Chrysler off so it can collect that mythical return. Chrysler's performance is so far outpacing expectations, and the company does have cash on hand. Those are actual, concrete good signs that Chrysler could yet emerge from its chrysalis.

[Source: Detroit News]

Ford announced today that it plans to acquire a financing package worth a heady $18 billion. The extra money will ensure that Ford survives the next couple of years while Alan Mulally and company attempt to turn the automaker around and bring profits back to the Blue Oval. Automotive News reports that Ford will spend $8 billion in cash by year's end, leaving it with $20 billion in the bank, so to speak. The new financing package that should be completed by December 31 will then boost Ford's liquidity to $38 billion. Ford says the added cushion will allow it to weather a recession or other unanticipated events that may come its way. Analysts note that while the automaker has bought itself a few years of secured operations, the mere fact the company went for the financing package means that it's going through money faster than originally anticipated, which is a bad sign. Either way, Ford will finish out the decade come hell or high water now, which is news we like to hear. With that monkey off its back, hopefully the automaker can now get down to the business of building better cars.

If you're interested in financial legalese, check out Ford's full press release after the jump.

[Source: Ford and Automotive News]

Facing the ignominy of huge dealer inventory and falling behind Toyota for 2nd place in July sales, Ford has decided to let anybody with a pulse finance one of its cars. Well, you do have to have some credit, but Ford is lowering the bar in this new incentive drive to include buyers with sub-prime credit ratings. By allowing customers the option of 0% financing for up to 72 months on every Ford, Lincoln, and Mercury (except the Ford GT and certain F-Series pickups), Ford hopes to jump start a stagnant summer and reclaim 2nd place. Incentives have already started and will continue through Labor Day.

[Source: Automotive News - sub required]

From all appearances, Ford Motor Company feels it will need a well-baited hook in order to attract investors to its most recent issue of bonds. As such, the Blue Oval crew is offering $2.5 billion with rates as high as 10.75 percent - a record for the company. Analysts state that this is "an expensive way" for the company to hold onto its $21.2B in cash, even as its prepares for yet another round of downsizing. Ford itself confesses that selling credit is currently "a little painful," and that the offering will add $90M each year to Ford's interest costs.

Ford bondholders are already due $57B over the next five years, and the company is saddled with a total of $121 in debt that carries a "junk" rating.

[Source: Detroit Free Press]