Car dealers welcome $12-billion boost

[dcaron999]

Breaking News from The Globe and Mail - Shawn McCarthy and Greg Keenan

Tuesday, January 27, 2009

Ottawa, Toronto — Auto dealers and buyers got a $12-billion boost to their available credit as Finance Minister Jim Flaherty provided budget assistance to finance vehicle sales and leases, as well as inventories for car dealers.

Under the new Canadian Secured Credit (http://forums.montrealracing.com/showthread.php?t=618463#) Facility, Ottawa will purchase from banks and other regulated financial institutions up to $12-billion worth of securities that are backed by auto loans (http://forums.montrealracing.com/showthread.php?t=618463#) and leases on vehicles and equipment.

The lenders, in turn, are expected to offer more credit to dealers as well as increase lending for car loans (http://forums.montrealracing.com/showthread.php?t=618463#) and leases.

The $12-billion infusion should kick-start the stagnant vehicle leasing market, said Rick Gauthier, president of the Canadian Automobile Dealers Association.

The credit crisis caused the auto makers' financial arms to halt financial support for their dealers and the banks refused to fill the gap, Mr. Gauthier said, leaving many dealers casting about for ways to finance purchases of vehicles from the car makers.

“We're going to have a direct injection of $12-billion directly into the auto sector, which is going to render these companies – the Toyota Credits and Fordhttp://images.intellitxt.com/ast/adTypes/mag-glass_10x10.gif (http://forums.montrealracing.com/showthread.php?t=618463#) Credits – liquid and allow them to get back into the marketplace and aggressively promote their products and support their dealers,” he said.

Chryslerhttp://images.intellitxt.com/ast/adTypes/mag-glass_10x10.gif (http://forums.montrealracing.com/showthread.php?t=618463#) Canada Inc. and Ford Motor Co. of Canada Ltd. had been pushing Ottawa to create a program to buy commercial paper issued by their finance arms so they could start offering leases to customers again. Leasing collapsed late last year when the credit freeze tightened.

Mr. Flaherty provided little direct aid to auto makers or their suppliers beyond the $2.7-billion share of the $4-billion bailout offered to Chrysler and General Motorshttp://images.intellitxt.com/ast/adTypes/mag-glass_10x10.gif (http://forums.montrealracing.com/showthread.php?t=618463#) of Canada Ltd. in December.

While struggling parts suppliers sought up to $1-billion in direct assistance, they'll have to be satisfied with across-the-board measures to improve access to credit, including a large increase in the lending capacity of Export Development Canada and the Business Development (http://forums.montrealracing.com/showthread.php?t=618463#) Bank of Canada.

The $12-billion will help indirectly, said Linda Hasenfratz, president of auto parts maker Linamar Corp., because the first step in an auto recovery “is actually getting people buying cars.”

Ms. Hasenfratz is still worried, however, about the cash crunch suppliers are going to face in the next two months because the virtual shutdown of North American production in January means parts makers will have no revenue coming in.

Mark Nantais, president of the Canadian Vehicle Manufacturers Association, which represents Chrysler, Ford and GM, applauded the boost to credit availability and the moves in the budget designed to restore consumer confidence.

“Getting back consumer confidence is the priority here because if we don't get people back into the showrooms, and into the stores and purchasing goods again, the revenue's not there for businesses and we continue to go on a downward spiral,” Mr. Nantais said. “So that's absolutely critical.”

Under the $12-billion program, all federally regulated financial institutions will be able to sell their auto-backed loans to the BDC, with the expectation that they will use the added liquidity to make new loans.

Finance officials said auto makers' finance arms will have to commit to becoming federally regulated institutions in order to qualify for the program. However, they won't have to wait for that qualification process to be completed before accessing federal assistance.

Mr. Flaherty said Industry Minister Tony Clement will develop a strategy over the coming months to position Canada's automotive sector for long-term success.

© The Globe and Mail

[bmwqc]

In my opinion, putting in all that money would be at best a Band-Aid solution, and at worse, the poor working stiff ends up carrying the debt for years to come. Yes, it would ease the current situation, but would not provide a long term solution. For the losers in this business - (namely the Big Three), the biggest reason for them stepping out of the leasing game has been that their cars are worth less (at the end of their leases) than their pre-stated buyback value. It is no secret that the manufacturers that have abandoned the leasing market also happen to produce cars that have the highest rate of depreciation. Now why is it that their cars depreciate more than the competition? I guess the average car buyer knows the answer to that.

Take for example 2 similarly priced (and sized) cars - the Chrysler Sebring and the Honda Accord. In order to make the monthly leasing payments competitive with the Honda, Chrysler had to keep the buyback value artificially high, but if in reality their car depreciates, say 20% more than the Honda after 3 years, Chrysler has to eat the loss.

The only long term solution for these loser car brands is to step up their ball game, increase their quality and provide their customers with better value for their hard-earned money. In this current environment of tight $$$, the bar has just been raised much higher.


Breaking News from The Globe and Mail - Shawn McCarthy and Greg Keenan

Tuesday, January 27, 2009

Ottawa, Toronto — Auto dealers and buyers got a $12-billion boost to their available credit as Finance Minister Jim Flaherty provided budget assistance to finance vehicle sales and leases, as well as inventories for car dealers.

Under the new Canadian Secured Credit (http://forums.montrealracing.com/showthread.php?t=618463#) Facility, Ottawa will purchase from banks and other regulated financial institutions up to $12-billion worth of securities that are backed by auto loans (http://forums.montrealracing.com/showthread.php?t=618463#) and leases on vehicles and equipment.

The lenders, in turn, are expected to offer more credit to dealers as well as increase lending for car loans (http://forums.montrealracing.com/showthread.php?t=618463#) and leases.

The $12-billion infusion should kick-start the stagnant vehicle leasing market, said Rick Gauthier, president of the Canadian Automobile Dealers Association.

The credit crisis caused the auto makers' financial arms to halt financial support for their dealers and the banks refused to fill the gap, Mr. Gauthier said, leaving many dealers casting about for ways to finance purchases of vehicles from the car makers.

“We're going to have a direct injection of $12-billion directly into the auto sector, which is going to render these companies – the Toyota Credits and Fordhttp://images.intellitxt.com/ast/adTypes/mag-glass_10x10.gif (http://forums.montrealracing.com/showthread.php?t=618463#) Credits – liquid and allow them to get back into the marketplace and aggressively promote their products and support their dealers,” he said.

Chryslerhttp://images.intellitxt.com/ast/adTypes/mag-glass_10x10.gif (http://forums.montrealracing.com/showthread.php?t=618463#) Canada Inc. and Ford Motor Co. of Canada Ltd. had been pushing Ottawa to create a program to buy commercial paper issued by their finance arms so they could start offering leases to customers again. Leasing collapsed late last year when the credit freeze tightened.

Mr. Flaherty provided little direct aid to auto makers or their suppliers beyond the $2.7-billion share of the $4-billion bailout offered to Chrysler and General Motorshttp://images.intellitxt.com/ast/adTypes/mag-glass_10x10.gif (http://forums.montrealracing.com/showthread.php?t=618463#) of Canada Ltd. in December.

While struggling parts suppliers sought up to $1-billion in direct assistance, they'll have to be satisfied with across-the-board measures to improve access to credit, including a large increase in the lending capacity of Export Development Canada and the Business Development (http://forums.montrealracing.com/showthread.php?t=618463#) Bank of Canada.

The $12-billion will help indirectly, said Linda Hasenfratz, president of auto parts maker Linamar Corp., because the first step in an auto recovery “is actually getting people buying cars.”

Ms. Hasenfratz is still worried, however, about the cash crunch suppliers are going to face in the next two months because the virtual shutdown of North American production in January means parts makers will have no revenue coming in.

Mark Nantais, president of the Canadian Vehicle Manufacturers Association, which represents Chrysler, Ford and GM, applauded the boost to credit availability and the moves in the budget designed to restore consumer confidence.

“Getting back consumer confidence is the priority here because if we don't get people back into the showrooms, and into the stores and purchasing goods again, the revenue's not there for businesses and we continue to go on a downward spiral,” Mr. Nantais said. “So that's absolutely critical.”

Under the $12-billion program, all federally regulated financial institutions will be able to sell their auto-backed loans to the BDC, with the expectation that they will use the added liquidity to make new loans.

Finance officials said auto makers' finance arms will have to commit to becoming federally regulated institutions in order to qualify for the program. However, they won't have to wait for that qualification process to be completed before accessing federal assistance.

Mr. Flaherty said Industry Minister Tony Clement will develop a strategy over the coming months to position Canada's automotive sector for long-term success.

© The Globe and Mail

[Gregster]

Yep no long term solutions. The Conservatives had to make concessions to their entire budget to make the others happy... Who will still end up most likely voting against it.

[PassatVR6]

Big time band aid solution. Just like giving starving nations free food, but never showing them how to really grow their food, and invest in proper farming infrastructure.

[Andrei]

Keep in mind that the car industry is not going to disappear from North America even if the Big Three go belly up.

The market is so huge and is different enough from the rest of the world that setting up local production is important for any manufacturer who want to sell enough cars here.

The only thing lost will be the address where the big boss sits. The rest of the infrastructure still has to be here including design/engineering studios.

Most giant car makers can't really be called American/Japanese/German etc. They are so spread out over the world that they are global. And if you consider the fact that anyone can buy shares in those companies the idea that profits are going to the country where the CEO sits is absurd.

If GM can't get their act together and goes bankrupt it would be very disruptive and painful for people immediately involved with the company but eventually someone else will take up that space. And I am sure the best product lines will survive under someone else's ownership. Yes, Greg, I don't think the Vette is going anywhere.

[johnmdanskin]

And people talk about gm not making cars people want, but they are still #2 in the world for volume. Profits are eroded by ridiculous uaw deals. The c
ars are popular.

[Andrei]

And people talk about gm not making cars people want, but they are still #2 in the world for volume. Profits are eroded by ridiculous uaw deals. The c
ars are popular.

Some of that #2 in volume comes from rental fleets.

In North America the general perception is that you don't buy a GM car to own it. You buy one because it's cheap. If you want to own a car you get a Toyota or a Honda. Note the lack of haggling in Toyota and Honda dealerships compared to domestics. They know their product will sell. GM dealers have to slash prices to move it out the door.

GM does know this and they are trying hard to change. The problem is that they figured this out 20 years later than they should have. Selling huge SUVs in the mid 90s blinded them to their problems.

[bmwqc]

In North America the general perception is that you don't buy a GM car to own it.

Unless it's Gregster's ZR-1 :D



Note the lack of haggling in Toyota and Honda dealerships compared to domestics. They know their product will sell. GM dealers have to slash prices to move it out the door.

Even the Japanese dealers are discounting their cars now.

[johnmdanskin]

Some of that #2 in volume comes from rental fleets.

In North America the general perception is that you don't buy a GM car to own it. You buy one because it's cheap. If you want to own a car you get a Toyota or a Honda. Note the lack of haggling in Toyota and Honda dealerships compared to domestics. They know their product will sell. GM dealers have to slash prices to move it out the door.

GM does know this and they are trying hard to change. The problem is that they figured this out 20 years later than they should have. Selling huge SUVs in the mid 90s blinded them to their problems.


Umm. When I bought my kids mazda we brought the dealer to within $200 of dealer cost and we didn't pay for a single option we didn't want. I sure thought we were haggling. Mazdas are genuine Japanese.

Cost of maintenance under very heavy use, AND resale are part of Hertz's computation. Hertz isn't a charitable organization, so I have to think that when Hertz buys American cars, the equation is working out for them. They also buy a lot of Korean cars. Not so many Toyotas. My intuition is that the Toyota reliability must be commanding a premium in excess of the delivered value. Consider also that Hertz customers will be really very pissed off if their car breaks under use. Hertz has to factor this into their computations as well.

If Hertz buys American, then American must be a good overall value. There is a separate question as to whether I personally like riding in American cars (oops. no.), but that isn't an economic reality, that's a personal choice, like preferring blue cheese wrapped in oak leaves and stored in caves for 6 years over american cheese which is a far better deal in terms of calories per dollar required to sustain life.

-j

[RMachucaA]

Some of that #2 in volume comes from rental fleets.

In North America the general perception is that you don't buy a GM car to own it. You buy one because it's cheap. If you want to own a car you get a Toyota or a Honda. Note the lack of haggling in Toyota and Honda dealerships compared to domestics. They know their product will sell. GM dealers have to slash prices to move it out the door.

GM does know this and they are trying hard to change. The problem is that they figured this out 20 years later than they should have. Selling huge SUVs in the mid 90s blinded them to their problems.


I went to see the pontiac G8 a few weeks ago, and the experience in dealing with the salesman was not a good one, to begin with, all salesmen looked the same, all dressed with the same dull 80's suits, i mean, in this day and age, you have to be sharp, you have to look sharp, specially if your dealing with the public, it helps the consumers perception and faith in the product they are selling by simple correlation... well they have NONE. Also, i was expecting some leeway with their prices, considering they need to move cars. There was none, after all the fees and taxes and so called "rebates" it definitively did not seem like a deal to me.

Afterwards i went to a Subaru dealership to check out the new impreza, i'll just say i was ready to sign and walk out with a new car at that moment :P.

The main point i want to make here, is that the unions dont let the workers feel the cold wrath of being fired for doing a shit job, so the unions protect mediocre people (basic assumption of course).... So unless this is dealt with along with fixing the image of american auto companies, people like me wont be getting american cars for a long time to come.

[Andrei]

Umm. When I bought my kids mazda we brought the dealer to within $200 of dealer cost and we didn't pay for a single option we didn't want. I sure thought we were haggling. Mazdas are genuine Japanese.

Cost of maintenance under very heavy use, AND resale are part of Hertz's computation. Hertz isn't a charitable organization, so I have to think that when Hertz buys American cars, the equation is working out for them. They also buy a lot of Korean cars. Not so many Toyotas. My intuition is that the Toyota reliability must be commanding a premium in excess of the delivered value. Consider also that Hertz customers will be really very pissed off if their car breaks under use. Hertz has to factor this into their computations as well.

If Hertz buys American, then American must be a good overall value. There is a separate question as to whether I personally like riding in American cars (oops. no.), but that isn't an economic reality, that's a personal choice, like preferring blue cheese wrapped in oak leaves and stored in caves for 6 years over american cheese which is a far better deal in terms of calories per dollar required to sustain life.

-j

I was talking about perceptions. Hertz operates a gigantic fleet whose cars are subjected to being driven like ...ahem.. "rentals". They know which cars will work or not.

But they also get amazing deals from the manufacturers. But only from manufacturers desperate enough to unload unsold stock. The numbers may not work for Toyota because the initial capital is higher than Ford or GM as Hertz is not going to get an awesome discount. Toyota normally expects to sell all of the production through the dealer network.

GM will dump off a train load of Grand Ams but they will make a loss on each one. Toyota makes money on every car they sell. Maybe not now but that's how they normally operate.

[bmwqc]

I would think that big rental companies usually get their new stock of cars quite early, soon after the new models are introduced. Would there be abuildup of unsold stock at that point?

I do agree though that rental companies pay very low prices for their cars.





I was talking about perceptions. Hertz operates a gigantic fleet whose cars are subjected to being driven like ...ahem.. "rentals". They know which cars will work or not.

But they also get amazing deals from the manufacturers. But only from manufacturers desperate enough to unload unsold stock. The numbers may not work for Toyota because the initial capital is higher than Ford or GM as Hertz is not going to get an awesome discount. Toyota normally expects to sell all of the production through the dealer network.

GM will dump off a train load of Grand Ams but they will make a loss on each one. Toyota makes money on every car they sell. Maybe not now but that's how they normally operate.