NEW YORK -- Standard & Poor's Ratings Services says it cut its ratings for General Motors, Ford Motor and Chrysler further into junk status.
S&P cited the automakers' mounting cash losses and the deteriorating U.S. auto market as the reasons for the moves. All have been cut to "B-" from "B."
Thursday, July 31, 2008
Another Quality Company Bites the Dust
GRAND RAPIDS -- A rough-and-tumble retail economy topped by a tight credit climate combined to claim another victim -- Classic Stereo and Video.
The locally owned chain succumbed today to tough competition from big box and online retailers. Its final blow came when Huntington Bank called in a loan that was several months overdue.
"This has taken twists and turns," said President John Higgs, who bought the company in April 2006. He joined Classic Stereo in 1985.
On Wednesday, he met with his employees to tell them the bad news.
The locally owned chain succumbed today to tough competition from big box and online retailers. Its final blow came when Huntington Bank called in a loan that was several months overdue.
"This has taken twists and turns," said President John Higgs, who bought the company in April 2006. He joined Classic Stereo in 1985.
On Wednesday, he met with his employees to tell them the bad news.
Friday, July 25, 2008
MORE FROM Associated Press
DETROIT -
Chrysler LLC said Friday its financial arm will get out of the auto leasing business by the end of the month because economic conditions have made leasing more expensive than buying, for both consumers and the company.
The move comes as Chrysler Financial is in the process of renewing a $30 billion credit line with banks amid a startling drop in values for leased trucks and sport utility vehicles that are coming back to automakers as leases end.
Chrysler Vice Chairman and President Jim Press said the company wants to allocate limited resources to retail incentives and financing, which make up 80 percent of the market, instead of leasing, which is 20 percent of the U.S. market.
Because banks lend money based on the risk, and the risk of leases sold as securities has increased, interest rates to borrow money for leases are higher than those for retail sales, said Tom Gilman, executive vice chairman of Chrysler Financial.
"They basically premium price for the risk, and the cost of that borrowing has increased dramatically," he said.
Press said the dramatic drop in truck and SUV values at the end of their leases also played a role in the company's decision.
"We really reached a point today in this environment where the advantages of leasing, the economic advantages of leasing, have really disappeared," Press said in a conference call Friday afternoon with reporters and industry analysts.
"When you have a certain amount of capital available, you're got to use it in a way that's smart and best for the customers and the company," he said.
Press said dealers will still be able to offer leases through independent sources, but not Chrysler Financial.
Chrysler said it will sweeten incentives on the retail side to make up for any lost lease business. The company on Friday announced that it will expand zero percent financing for 72 months on vehicles from Ram pickup trucks to the Jeep Grand Cherokee and Commander and other SUVs. The offers will run through the end of the month.
The company also plans to enhance its incentives during the next 60 days in an effort to capture more of the retail market, Press said.
Steven Landry, executive vice president of North American sales, said the new incentives will in many cases reduce monthly payments so they are close to or the same as lease payments.
"They really look for the monthly payment when they go to the dealership," he said.
Chrysler's announcement comes a day after Ford Motor Co. credit arm took a $2.1 billion charge because of the drop in the residual value of leased vehicles, mainly trucks and sport utility vehicles.
Press said Chrysler would also have to take a similar write-down, but "it hasn't been a major problem for us at this point in time."
Chrysler, which is 80.1 percent owned by Cerberus Capital Management LP, is a private company and unlike Ford, does not have to report such losses publicly.
Press also said Chrysler's gasoline subsidy incentive, which keeps the price for customers at $2.99 per gallon for three years, will end this month. The deal is based on 12,000 miles of driving per year and the vehicle's government fuel economy rating.
Chrysler LLC said Friday its financial arm will get out of the auto leasing business by the end of the month because economic conditions have made leasing more expensive than buying, for both consumers and the company.
The move comes as Chrysler Financial is in the process of renewing a $30 billion credit line with banks amid a startling drop in values for leased trucks and sport utility vehicles that are coming back to automakers as leases end.
Chrysler Vice Chairman and President Jim Press said the company wants to allocate limited resources to retail incentives and financing, which make up 80 percent of the market, instead of leasing, which is 20 percent of the U.S. market.
Because banks lend money based on the risk, and the risk of leases sold as securities has increased, interest rates to borrow money for leases are higher than those for retail sales, said Tom Gilman, executive vice chairman of Chrysler Financial.
"They basically premium price for the risk, and the cost of that borrowing has increased dramatically," he said.
Press said the dramatic drop in truck and SUV values at the end of their leases also played a role in the company's decision.
"We really reached a point today in this environment where the advantages of leasing, the economic advantages of leasing, have really disappeared," Press said in a conference call Friday afternoon with reporters and industry analysts.
"When you have a certain amount of capital available, you're got to use it in a way that's smart and best for the customers and the company," he said.
Press said dealers will still be able to offer leases through independent sources, but not Chrysler Financial.
Chrysler said it will sweeten incentives on the retail side to make up for any lost lease business. The company on Friday announced that it will expand zero percent financing for 72 months on vehicles from Ram pickup trucks to the Jeep Grand Cherokee and Commander and other SUVs. The offers will run through the end of the month.
The company also plans to enhance its incentives during the next 60 days in an effort to capture more of the retail market, Press said.
Steven Landry, executive vice president of North American sales, said the new incentives will in many cases reduce monthly payments so they are close to or the same as lease payments.
"They really look for the monthly payment when they go to the dealership," he said.
Chrysler's announcement comes a day after Ford Motor Co. credit arm took a $2.1 billion charge because of the drop in the residual value of leased vehicles, mainly trucks and sport utility vehicles.
Press said Chrysler would also have to take a similar write-down, but "it hasn't been a major problem for us at this point in time."
Chrysler, which is 80.1 percent owned by Cerberus Capital Management LP, is a private company and unlike Ford, does not have to report such losses publicly.
Press also said Chrysler's gasoline subsidy incentive, which keeps the price for customers at $2.99 per gallon for three years, will end this month. The deal is based on 12,000 miles of driving per year and the vehicle's government fuel economy rating.
Chrysler Financial arm to stop leasing.
There goes 91% of my business!
DETROIT (Reuters) - Chrysler LLC said its financing arm would stop offering vehicle leases to U.S. consumers, a sharp break in strategy in response to tighter credit and the plunging resale prices for gas-guzzling trucks.
The abrupt announcement on Friday afternoon was the latest sign of the stress on Chrysler from an industry downturn that has hit all automakers. Earlier this week, Chrysler said it would cut 1,000 white-collar jobs by the end of September.
The move comes as Chrysler Financials $30 billion credit facility, backed by loans to consumers and dealers for vehicle purchases, is up for renewal in early August and the lender could see its borrowing costs rise amid the continuing credit market turmoil.
U.S. auto sales have dropped to their lowest level in 15 years, and the sudden premium on fuel-efficiency in the face of record gasoline prices has forced consumers to abandon SUVs and other light trucks.
The result has been a sharp decline in the resale prices for light trucks that has forced major automakers and related lenders to take large losses to write down the value of leases on those once-popular vehicles.
"You have got the dropping of the used car vehicle prices. You have got people that are struggling with the credit crunch," Chrysler Financial spokesman Bill Porter said. "It is very difficult right now to offer competitive lease products. So we are switching our strategy."
Dave Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan, said the credit crisis has put "an enormous amount of pressure" on automakers' captive finance arms, which have been key profit centers in the past.
Leasing was very popular with automakers in the earlier part of the decade, when the U.S. auto market was booming, and automakers were able to boost sales by offering attractive lease programs. Continued...
"Leasing has grown over the years," said Erich Merkle, an automotive consultant with accounting and consulting firm Crowe Chizek and Co LLC. "It goes through cycles. It's off a little bit right now."
While the move by Chrysler could protect its balance sheet from a further drop in used-car values, it also could be a drag on its already sluggish vehicle sales, Merkle said.
Chrysler's larger rival Ford Motor Co this week took a $2.1 billion charge for its finance company when it reported second-quarter results, in large part because of the hit it took on the declining value of SUV and truck leases.
Cerberus also owns a 51 percent stake in GMAC, the former captive finance company for General Motors Corp.
GMAC spokeswoman Gina Proia declined to comment on Chrysler's announcement or on whether the lender would follow Ford in writing off vehicle loans on its books.
Chrysler's decision could add to the pressure on dealers that already are reeling from a slump in vehicle demand.
Alan Helfman, a dealer at Helfman River Oaks Chrysler Jeep in Houston, Texas, said the news from Chrysler had been a shock, since it represented such a potentially disruptive break with the way sales have been made for years.
"When I first got the news I was hoping that I could have had a second floor on the dealership so I could jump," he said, adding that he had relaxed after talking to local bankers.
Chrysler dealers can still offer leases through independent finance firms, Chrysler Vice Chairman and President Jim Press said on a conference call.
"We really reached a point today, in this environment, where the economic advantages of leasing have really disappeared," Press said, adding that he anticipates that some sales could be lost due to the pull back from leasing.
Nationally, Chrysler said about 20 percent of consumers lease vehicles.
Chrysler, which has seen its sales drop 22 percent in the first half, relies more heavily on sales of light trucks than its rivals and it has been the most aggressive in discounting.
The announcement of the Chrysler Financial move to stop leasing came as the automaker extended a zero-percent financing for up to 72 months on some of its key larger vehicles such as the Dodge Aspen, Jeep Grand Cherokee and Commander.
U.S. automakers are not the only ones that have been hit by the slump in SUV and pickup truck resale values.
Nissan Motor Co Ltd Chief Executive Carlos Ghosn said this week that the reserves needed to cover losses on vehicle leases had been the one major surprise of the downturn for the Japanese automaker.
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