The financing arms of Germany’s automakers are way ahead of GMAC. Germany’s industry rag Autohaus heard of a little sit-down of BMW, Daimler and VW. All present cheerfully agreed to ask Frau Merkel for a little help. Not to prop up their equity, no need. They’ve got enough. BMW actually went on record and said: “Our bank is right as rain.” (Or German words to that effect.) So why are they holding out their hands for a hand-out to the tune of a few billion Euros? Germany’s captives would like the government to co-sign their notes, which would give them access to cheaper money, which would make their profits even higher, which would give their parents more leeway in giving low interest loans for even higher sales, which would be good for the economy, jobs, the social structure of Deutschland. Dietmar Kupisch, spokesman of VeeDub Germany’s Financial Services said it simpler to the Braunschweiger Zeitung: “It would mean cheaper liquidity for us.” Mercedes doesn’t need any help. Surprising reaction from Opel: “Thanks, but no thanks. We are taken care of by GMAC.” Haven’t they gotten the memo? Nobody even bothered to ask Porsche. Anyway…
The VDA, der Verband der Deutschen Automobilindustrie (the snotty club of German auto makers), thinks it’s a swell idea; it would shield their members from the “dislocations in the international financial markets.” A worthy goal.
Why are Germany’s captives to snug and flush? One reason is that they saddle their dealers with the residual value risk of a lease. (When reminded that U.S. captives take that burden off their dealers’ backs, German auto bankers privately say: “Idioten.”) Scores of German dealers die each year because of that. Which is viewed as welcome Darwinism by Germany’s makers of money and automobiles. (French) Renault at least has a little mercy with their pained dealers. They’ll hand our €5.5m to at least partially recompense their dealers for losses in leasing. Instead, they’ll shoulder their customers with the risk. Guaranteed buy-back? “Mais non.”
The big difference to GMAC is, that the companies have been always financially sound and have not ventured into household mortgages. The problem – as with many other credit driven business – currently is that the interbanking loan market is practically dry, which was prompted by the Lehman failure. So basically the government guarantee resolves the issue of liquidity, to the prior normal level. Same for other banks – this is in any case the better route than buying out bad debt as the US is doing. Also, the companies do not want to be rescued. They continue to bear the risk from the leases as they did before.
One additional point: you are wrong to name the VDA the Verband der Deutschen Automobilindustrie. That was originally the case, but it has been renamed to Verband der Automobilindustrie, and many foreign carmakers are members of Group 1 of the VDA, where automobile manufacturers are discussing matters. The VDA since long is no German Club any more.
By the way: letting dealsers die is certainly the better way than keeping them afloat as GM has done obviously for too long.
The german car financing companies have been doing a very healthy business – contrary to GMAC. They have always been profitable, and continue to be so. Only the failure of Lehman has caused the interbanking markets to dry up. Accordingly, using the government guarantees to get funding again is a faire response to the problems caused by the US financial crisis. There is no doubt that the government in the end will not bear any costs.
By the way, the VDA was formerly known as Verband der Deutschen Automobilindustrie. Today it is just Verband der Automobilindustrie, with many foreign manufacturers being a member. This is since long no German snub club.
Finally, letting dealers die is certainly better than keeping them alive as GMAC did. Also, this guarantees normally that people act responsibly in giving credit, as they remain financially responsible – different from the credit resale industry which caused the whole trouble in the US.
Thanks, Tire guy. Old customs die hard …. I stand corrected and castigated. Anyway, Verband der Deutschen Automobilindustrie ALWAYS meant any automobile industry in Deutschland, honi soit qui mal y pense.
Your statement regarding residual losses is only partly true. Most risk is with the caütives. Like TireGuy said, this is just a liquidity issue and a much better solution than in the US.
@Boston. Party true, I agree. In Germany, it differs from maker to maker. Mercedes assumes the whole risk. Volkswagen none.