The Truth About Cars » High Finance http://www.thetruthaboutcars.com The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Mon, 14 Jul 2014 16:00:14 +0000 en-US hourly 1 http://wordpress.org/?v=3.9.1 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars editors@ttac.com editors@ttac.com (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » High Finance http://www.thetruthaboutcars.com/wp-content/themes/ttac-theme/images/logo.gif http://www.thetruthaboutcars.com/category/news-blog/high-finance/ Buy-Here, Pay-Here Dealers Face Stiff Competition From New-Car Dealers’ Cheap Credit http://www.thetruthaboutcars.com/2014/07/buy-here-pay-here-dealers-face-stiff-competition-from-new-car-dealers-cheap-credit/ http://www.thetruthaboutcars.com/2014/07/buy-here-pay-here-dealers-face-stiff-competition-from-new-car-dealers-cheap-credit/#comments Thu, 10 Jul 2014 12:00:57 +0000 http://www.thetruthaboutcars.com/?p=862945 buy here pay here

Buy-here, pay-here lots, traditionally the place to find a vehicle with little, bad or no credit, are facing some stiff competition as of late from new-car dealers offering cheap financing.

Automotive News reports in a conference call this spring by America’s Car-Mart CEO Hank Henderson, he said new-car dealerships were making finance offers on both low-end new vehicles and high-end used units his group are unable to counter:

Some of the offerings are zero percent down, no payments for 90 days. We’ve even seen no payments for a year — and then those are getting financed at 72 months, sometimes even longer.

Lenders are fueling the demand for cheap credit at new-car dealers, as well, forcing the buy-here, pay-here dealers to turn down business from consumers hoping to find as much with the latter party. That said, the approach said dealers promote — including substantial down payments and shorter terms — claims to be more economically healthy for subprime consumers than the competitive approach that could leave a consumer upside-down in the long run.

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Feinberg Plan To Be Funded Out-Of-Pocket By GM http://www.thetruthaboutcars.com/2014/07/feinberg-plan-to-be-funded-out-of-pocket-by-gm/ http://www.thetruthaboutcars.com/2014/07/feinberg-plan-to-be-funded-out-of-pocket-by-gm/#comments Thu, 10 Jul 2014 11:00:46 +0000 http://www.thetruthaboutcars.com/?p=862929 Recalled GM ignition switch

Kenneth Feinberg’s victim compensation plan for those severely affected by the ignition switch linked to 13 fatalities, 54 accidents and a recall of 2.6 million vehicles will not be funded by liability insurance, according to General Motors director of financial communications David Roman.

Automotive News reports the no-cap fund will be paid “through cash on hand,” which could amount to at least as much as $1 million per claim. Nir Kossovsky, CEO of Pitsburgh, Penn.-based Steel City Re, states that although this strategy will prove expensive, “it beats the alternative” of litigation as far as restoring reputation is concerned.

However, litigation will be the rule of the day for the automaker. One of the attorneys involved, Jere Beasley of Beasley, Allen, Crow, Methvin, Portis & Miles PC in Montgomery, Ala. says he has been contacted by 300 people alone in June wanting to pursue a lawsuit. He adds that while the compensation plan is mostly sound, Beasley takes issue with Feinberg’s sole authority over how claims will be handled, as well as the heavy burden of proof placed upon the claimants.

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AlixPartners: 2014 May Be The Peak Of U.S. Auto Sales http://www.thetruthaboutcars.com/2014/07/alixpartners-2014-may-be-the-peak-of-u-s-auto-sales/ http://www.thetruthaboutcars.com/2014/07/alixpartners-2014-may-be-the-peak-of-u-s-auto-sales/#comments Thu, 10 Jul 2014 10:00:59 +0000 http://www.thetruthaboutcars.com/?p=862905 Toyota Sales Lot

The good news? Automakers are enjoying a sales boom in the United States the likes of which haven’t been seen since the Great Recession brought the hammer down, with June 2014 sales alone surpassing those in July of 2006. Should the boom continue, 2014 will close as the industry’s best year in a long time, with over 16 million vehicles sold when the calendar ticks over to 2015.

The bad news? This year may be the last year U.S. sales ever climb this high.

Autoblog reports a study by AlixPartners suggests sales will peak later this year, then head back down the mountain on the beaten path of rising interest rates — diminishing purchasing power in the process — then veer toward the long trail built upon the Millennials’ alleged preference of Uber and Car2Go over individual ownership.

In the near-term, director Dan Hearsch warns the lines of cheap credit today will dry up over the next two to three years:

The biggest factor would be this credit bubble, and without making an exact projection of when that will happen, that, to use is the window when you’ll see an impact on car sales. The other side of it is cyclical and predictable. … We’re a little more pessimistic because of these other factors.

Further up the path, rising fuel prices will temporarily give hybrids and EVs a boost in sales, but improvements in the ICE and the ongoing issues with EVs — range, higher upfront costs and production of battery packs — will mitigate whatever gains are made unless the technology comes into parity with the ICE.

Finally, AlixPartners expects 80 percent of all vehicles sold in North America by 2017 will be connected vehicles, and advises governments and OEMs to prepare for the day autonomous vehicles take their first outings beyond Google’s research facility, as such vehicles will be key to future sales.

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Fiat Sets Date Of Shareholder Meeting For August 1 http://www.thetruthaboutcars.com/2014/07/fiat-sets-date-of-shareholder-meeting-for-august-1/ http://www.thetruthaboutcars.com/2014/07/fiat-sets-date-of-shareholder-meeting-for-august-1/#comments Fri, 04 Jul 2014 13:00:38 +0000 http://www.thetruthaboutcars.com/?p=858633 A new Fiat Chrysler Automobiles sign is pictured after being unveiled at Chrysler Group World Headquarters in Auburn Hills, Michigan

Own any shares in Fiat S.p.A.? The automaker just announced it will hold its next general assembly of all shareholders August 1, where the topic of discussion will be the approval of the merger of Fiat with Chrysler Group to become Fiat Chrysler Automobiles N.V.

Reuters reports shareholders will also be asked to approve the merger of Fiat with its wholly owned subsidiary Netherlands Fiat Investments N.V. prior to the FCA vote. The meeting would allow CEO Sergio Marchionne to list FCA on the New York Stock Exchange by October at the earliest.

Those who approve FCA’s existence will receive one FCA common share for every Fiat share they hold, while those against will have the right of withdrawal for the next 15 days, with the redemption price set to €7.727 ($10.51 USD) per Fiat share.

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OCC Warns Of Auto Lending Risk http://www.thetruthaboutcars.com/2014/07/occ-warns-of-auto-lending-risk/ http://www.thetruthaboutcars.com/2014/07/occ-warns-of-auto-lending-risk/#comments Thu, 03 Jul 2014 14:48:24 +0000 http://www.thetruthaboutcars.com/?p=858137 20140701_auto2

The Office of the Comptroller of the Currency, a government entity that regulates and supervises banks, is sounding the alarm regarding risks related to auto loans.

In its semi-annual report released earlier this week, the OCC warned about the usual factors that TTAC has been discussing for some time: rising loan terms, an increased focus on monthly payments and deteriorating underwriting standards

Across the industry, auto lenders are pursuing growth by lengthening terms, increasing advance rates,
and originating loans to borrowers with lower credit scores. Loan marketing has become increasingly
monthly-payment driven, with loan terms and LTV advance rates easing to make financing more
broadly available. The results have yet to show large-scale deterioration at the portfolio level, but signs
of increasing risk are evident. Average LTV rates for both new and used vehicles are above
100 percent for all major lender categories, reflecting rising car prices and a greater bundling of add-on
products such as extended warranties, credit life insurance, and aftermarket accessories into the
financing…

The average loss per vehicle has risen substantially in the past two years, an indication of how longer
terms and higher LTVs can increase exposure. Average charge-off amounts are higher across all lender
types over the last year. These early signs of easing terms and increasing risk are
noteworthy, and the OCC will continue to monitor product terms and risk layering practices to ensure
that banks manage growth and exposure prudently.

The OCC report did not single out subprime loans specifically, but instead focused on the entire auto loan sector. The full report is available here.

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Chevrolet Offers 14.7% APR Financing To “Well Qualified” Corvette Buyers http://www.thetruthaboutcars.com/2014/06/chevrolet-offers-14-7-apr-financing-to-well-qualified-corvette-buyers/ http://www.thetruthaboutcars.com/2014/06/chevrolet-offers-14-7-apr-financing-to-well-qualified-corvette-buyers/#comments Fri, 27 Jun 2014 10:40:41 +0000 http://www.thetruthaboutcars.com/?p=853809 download

While perusing Chevy’s website to see if there is any color of the 2014 Corvette that actually makes the car look halfway decent, I came across the financing offer pictured above. And, no, I did not enter any personal info that would lead GM’s captive Ally Financial (or whoever the hell GMAC is now) to deem me only eligible for such a high interest rate. Just what is going on here?

A quick look at other Chevrolet vehicles on the site show financing offers of 3.9% to 4.9% APR. These rates may be subvented, or bought down by the manufacturer to help move slow-selling iron, though with car loan rates being under 2.0% by independent banks in much of the US, one has to wonder how much Ally is being charged for their money. Even if they are paying a sky-high 4.0%, it is a mystery why they would advertise a 14.7% loan on the Stingray, rather than, say 6.0% or 7.0%. Ally and the dealers would make a fortune on this 72-month loan but I don’t think they will get any takers because unlike buying the Corvette itself, with dealer price gouging running rampant, consumers actually have many choices when it comes to financing.

I can only conclude that either this offer is in error (maybe even their marketing folks are slammed by the recall crisis) or Ally Financial is simply not interested in $50,000+ loans.

What say you?

 

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GM Ignition Issues Pile Up From Within, Abroad http://www.thetruthaboutcars.com/2014/06/gm-ignition-issues-pile-up-from-within-abroad/ http://www.thetruthaboutcars.com/2014/06/gm-ignition-issues-pile-up-from-within-abroad/#comments Thu, 26 Jun 2014 12:00:14 +0000 http://www.thetruthaboutcars.com/?p=852961 Violet GM RenCen

In today’s General Motors digest: An ignition-related issue is quietly fixed years before the February 2014 recall; a Chinese supplier is blamed for defective switches recalled in June; Ally prepares to take flight from the Beltway; and Mark Reuss helps bring back a Corvette stolen 33 years ago.

Automotive News reports two design flaws in switches used on the Chevrolet Cobalt and Saturn Ion allowed the key to slip out of the casing while the engine still had power. The flaws were investigated twice in November 2004 and June 2005, prompting supplier Ortech to modify the shape and size of the ignition lock cylinder based on the findings. However, consumers weren’t notified of this particular change until a recall notice was issued in April 2014. The design change was implemented in 2006, according to GM.

In related news, Reuters reports the recall of 3.4 million vehicles earlier this month by GM was due to a defective ignition switch made by Chinese supplier Dalian Alps Electronics. Unlike the similar situation affecting 2.6 million vehicles recalled in February, the automaker has opted to replace or rework the keys to eliminate a slot that would allow a ring to shift to one side, pulling the switch out of the “run” position. Parent company Alps Electric claims that while Dalian did make the part, the subsidiary manufactured the switch based on GM’s designs, and that neither party had received word or complaint from the automaker about the issue.

On the financial front, Automotive News says Ally Financial, the former financial wing of GM under the name GMAC Financial, is one step closer to corporate independence from ownership by the United States Treasury when two of the remaining three Treasury-nominated board members step down from the board during the lender’s annual shareholder conference July 17. Ally hopes to be out from government ownership by the end of 2014, allowing the lender to regain access to bank deposits in funding subprime loans, benefiting both it and its dealership network due to the low costs in using bank deposits over more expensive funding tools. Currently, the Treasury owns 16 percent of Ally, down from 63 percent at the start of 2014, and 37 percent prior to the lender’s IPO in April.

Finally, WXYZ-TV reports GM’s executive vice president of global product development Mark Reuss has offered to bring home a 1979 Chevrolet Corvette that was stolen 33 years ago from its owner, George Talley, at GM’s expense. Earlier this week, AAA called Talley to inform him the car was found in good condition in Hattiesburg, Miss. after a falsified VIN tipped off authorities to the car’s whereabouts. Reuss made the offer to Talley during an interview with WJR-AM’s Paul W. Smith, and the Corvette is expected to come home within the next few days.

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Tesla Is World’s Most Important Auto Maker, Says Tesla Debt Underwriter http://www.thetruthaboutcars.com/2014/06/tesla-is-worlds-most-important-auto-maker-says-tesla-debt-underwriter/ http://www.thetruthaboutcars.com/2014/06/tesla-is-worlds-most-important-auto-maker-says-tesla-debt-underwriter/#comments Mon, 23 Jun 2014 11:00:59 +0000 http://www.thetruthaboutcars.com/?p=849946 550x365xtesla-model-s-logo-550x365.jpg.pagespeed.ic.C2rTVvi0LG

A recent research note from Morgan Stanley dubbed Tesla the “world’s most important auto maker”, on account of its innovation in the area of electric vehicles, autonomous cars and connectivity. Could there be another reason for such enthusiasm?

Observers will remember that earlier this year, Morgan Stanley raised its share price for Tesla to $320 per share, amid talk of Tesla disrupting the energy sector with is new battery-producing gigafactory. One day after that, Tesla announced a $1.6 billion debt offering underwritten by…Morgan Stanley.

In the case of the $320 share price target, analyst Adam Jonas was wildly optimistic about Tesla, even suggesting that the company could help bring about a “utopian society” by 2026. Jonas is also the same analyst labeling Tesla as the most important car maker…in the wuurrlld.

Coincdence? A massive breach of the Chinese Wall? Or a symptom of a press corp that is near-universal in its reluctance to “disrupt” Tesla’s brilliant PR narrative (hip, successful entrepeneur from Silcion Valley looking to topple one of Industrial America’s most sclerotic, antiquated industries)? Likely a combination of all three. Or, tell me why I’m wrong in the comments.

 

 

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Captives Dominating Auto Financing As Banks Resort To Risky Loans http://www.thetruthaboutcars.com/2014/06/captives-dominating-auto-financing-as-banks-resort-to-risky-loans/ http://www.thetruthaboutcars.com/2014/06/captives-dominating-auto-financing-as-banks-resort-to-risky-loans/#comments Thu, 19 Jun 2014 15:27:47 +0000 http://www.thetruthaboutcars.com/?p=846961 logo_toyota_credit_a

OEM captive financing arms are increasing their share of new car loans, with banks resorting to underwriting riskier loans in the used car market and to less credit-worthy buyers.

Citing data from credit agency Experian, Reuters reports that the captive arms of Ford, Honda and Toyota made up half of all new car loans in Q1 of 2014, up from 37 percent in the prior year. Buoyed by low interest rates, which allow for greater incentives, captive financing arms can offer better rates and other subsidies to consumers, enabling them to get in a new car more easily, while generating stronger sales numbers for the OEM.

At the same time, low interest rates have also created an environment where fixed income yields are low, causing investors to turn towards securities backed by auto loans, which can provide greater yields than other fixed income investments. This in turn is said to be fueling the supply of available credit for auto loans.

According to the article, certain banks (Ally and US Bancorp were among the examples cited) have turned towards financing used cars and buyers with subprime credit scores as a way of competing in the lucrative auto financing market. US Bancorp now makes 15 percent of its auto loans to buyers with subprime scores, compared to zero in previous years. Although it only represents one data point regarding financial institutions, the Reuters piece also claims that captives are increasing their share of subprime loans, while offering increasingly longer loan terms – in line with previous reports regarding declining underwriting standards and lengthier loans.

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Bipartisan Senate Bill To Raise Fuel Taxes For The First Time Since 1993 http://www.thetruthaboutcars.com/2014/06/bipartisan-senate-bill-to-raise-fuel-taxes-since-1993/ http://www.thetruthaboutcars.com/2014/06/bipartisan-senate-bill-to-raise-fuel-taxes-since-1993/#comments Thu, 19 Jun 2014 13:00:59 +0000 http://www.thetruthaboutcars.com/?p=846921 gas-pump-save-ftr

For over two decades, the federal fuel tax has held at 18.4 cents for gasoline and 24.4 cents for diesel per gallon sold. A bipartisan bill working through the United States Senate could soon change this, especially as the nation’s Highway Trust Fund — used for funding infrastructure projects — comes closer to running dry by August of this year.

Reuters reports Sens. Bob Corker of Tennessee and Chris Murphy of Connecticut want to raise both taxes by 12 cents, which would be spread out over two years prior to linking future increases to inflation. The senators also proposed tax cuts to make up for the increase, though nothing was specified at the time.

Meanwhile, some legislators want to fund the trust through a corporate offshore profit tax repatriation holiday that would resemble a 2004 proposal led by former president George W. Bush: 12 months, 85 percent deduction for dividends paid. The Joint Committee on Taxation estimated the holiday would bring in $20 billion during the period, but would lead to expectations for more holidays down the road.

President Barack Obama opposes this method, believing “it would give large tax breaks to a very small number of companies that have most aggressively shifted profits, and in many cases, jobs, overseas,” according to White House representative Jay Carney.

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Opel Reaches Severance Deal With Bochum Workers http://www.thetruthaboutcars.com/2014/06/opel-reaches-severance-deal-with-bochum-workers/ http://www.thetruthaboutcars.com/2014/06/opel-reaches-severance-deal-with-bochum-workers/#comments Tue, 17 Jun 2014 12:00:35 +0000 http://www.thetruthaboutcars.com/?p=845489 Opel - Picture courtesy ibtimes.com

General Motors subsidiary Opel has come to terms on a severance package for workers at its Bochum factory, set to close this year as part of the company’s restructuring plan.

Reuters reports Opel’s management reached a “binding and reliable” agreement with German labor union IG Metall. NASDAQ adds workers will receive €552 million ($748 million USD) in social benefits as a result of the agreement.

The closure of the plant — including an additional €60 million ($81 million USD) for related investments — will add to the burden of non-recurring costs for Opel, which also include currency challenges. GM expects Opel will become profitable by 2016 at the earliest, having accumulated $15 billion USD in losses beginning in 1999.

In a separate deal made in April, parts of Bochum will be purchased by Deutsche Post, bringing with it 600 jobs and a multi-million euro investment into the 20-acre facility.

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AAA: 51 Percent Surveyed Willing To Pay For Better Roads http://www.thetruthaboutcars.com/2014/06/aaa-51-percent-surveyed-willing-to-pay-for-better-roads/ http://www.thetruthaboutcars.com/2014/06/aaa-51-percent-surveyed-willing-to-pay-for-better-roads/#comments Thu, 12 Jun 2014 10:00:03 +0000 http://www.thetruthaboutcars.com/?p=842890 Carmageddon

As those inside the Beltway debate how best to fund their responsibility for the nation’s transportation infrastructure, a AAA study finds most Americans would pay more taxes for better roads.

Autoblog reports 67 percent of the 2,013 surveyed by AAA want the federal government to get it together and put more money into maintenance, with 52 percent in support of an increase in fuel taxes. Further, 51 percent surveyed would go as far as supporting a candidate who would support increases in funding for road maintenance and construction.

AAA CEO and president Bob Darbelnet added that many Americans were “willing to pay a little more” in taxes if the result led to “better roads, bridges and transit systems,” having become “fed up with record-long commutes, unsafe highways and never-ending potholes caused by political inaction.” In turn, the organization claims drivers would save $324 annually on road-related repairs for their vehicles.

AAA’s call to action comes under the potential threat of road work delays when the Highway Trust Fund — whose replenishment depends on the 18.3-cent/gallon gasoline and 22.4-cent/gallon diesel taxes that last saw an increase over 20 years ago — runs out of funds sometime this August. The Obama administration and a few members of Congress have offered solutions to the funding problem, but nothing more as come of them thus far.

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Moody’s: Underwriting Standards, Borrower Credit Declining http://www.thetruthaboutcars.com/2014/06/moodys-underwriting-standards-borrower-credit-declining/ http://www.thetruthaboutcars.com/2014/06/moodys-underwriting-standards-borrower-credit-declining/#comments Wed, 11 Jun 2014 12:49:06 +0000 http://www.thetruthaboutcars.com/?p=842314 12116452-subprime-auto-loan-interest-rates

The global outlook for Auto Back Securities (ABS) is steady – except in North America, where underwriting standards and borrower credit are slipping.

The latest news comes from ratings agency Moody’s, which issued a new report on the popular investment vehicle. Sanjay Wahi, Vice President and Senior Analyst, stated

“Globally, auto loan ABS pools will continue to consist primarily of loans to prime borrowers. The exception is the US, which has a sizable market for securitizations backed predominantly by near-prime and subprime borrowers.”

Moody’s has long been bearish on subprime ABS in the United States. Both Europe and China are cited as having safer loan pools due to stronger underwriting standards and more rigorous loan terms. But the United States is unique in the predominance of subprime loans, perhaps in part due to the demand for specific sections of ABS (called “tranches” in the investment world) which are comprised of the riskiest subprime loans.

ABS has become a popular security in recent years, with subprime driving much of its growth. With fixed income yields at historic lows, investors are hungry for securities that will provide decent returns. ABS, particularly the subprime tranches of these securities, are among the few products that can provide them - their greater risk profile entails the potential for a higher return. Some have argued that the demand for ABS has led to the growth in subprime financing, with looser underwriting standards (in some cases, they are laughably lax) and a number of OEM captive financing arms that are all too willing to finance buyers with poor credit so that they can “move the metal”. Traditionally, the thinking has been that most buyers are sufficiently trustworthy enough to make their payments on time, and able to offset the few delinquent buyers – but that trend appears to be reversing as of late, with delinquencies on the rise. And if the latest trends outlined by Moody’s are any indication, this isn’t likely to reverse.

 

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Loan Terms, Monthly Payments Hit Record Highs In 2014 http://www.thetruthaboutcars.com/2014/06/loan-terms-monthly-payments-hit-record-highs-in-2014/ http://www.thetruthaboutcars.com/2014/06/loan-terms-monthly-payments-hit-record-highs-in-2014/#comments Mon, 02 Jun 2014 17:05:57 +0000 http://www.thetruthaboutcars.com/?p=835833 MK-CC261A_CarAd_G_20130408211241

The easy-credit train keeps on rolling in the auto world, with credit rating agency Experian reporting new records in key auto finance metrics.

Loan terms for new vehicles stretched to 66 months in Q1 2014, up from 65 months a year earlier. Loan terms for used cars grew up 61 months on average, up from 60 months one year prior. The average monthly payment for a new car was up to $474 per month, a 3.3 percent increase year over year, while used car payments ticked up 1.1 percent. The actual amount financed was up to $27,612 for a new car, up 3.6 percent, while for used cars, the amount was $17,927, a 2.3 percent increased.

Experian’s Melinda Zabritski was candid about the cause of the record debt that Americans are now taking on, stating

“As the cost of purchasing a new vehicle continues to rise, consumers clearly are stretching the loan term to help lower monthly payments, keeping them at a manageable level,”

Remember, you heard it here first.

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GM Korea Faces Critical Wage Negotiations Amid Rising Won, Labor Costs http://www.thetruthaboutcars.com/2014/05/gm-korea-faces-critical-wage-negotiations-amid-rising-won-labor-costs/ http://www.thetruthaboutcars.com/2014/05/gm-korea-faces-critical-wage-negotiations-amid-rising-won-labor-costs/#comments Fri, 30 May 2014 13:00:57 +0000 http://www.thetruthaboutcars.com/?p=834401 GM Korea Bupyeong Plant

With labor costs set to rise in South Korea, wage negotiations between management and employees inside GM Korea may be “the most critical negotiation” the subsidiary has ever faced.

Bloomberg reports the rising costs are the result of the nation’s Supreme Court ruling last December that bonuses and other compensation were to be included in the base pay of an employee’s annual earnings. The ruling means a total of 13.75 trillion won ($13.5 billion USD) will be added to current labor costs, which GM Korea CEO Sergio Rocha claims won’t be good for his company, the local automotive industry, or “Korea Inc.”

Speaking of the won, Rocha also voiced his concerns about the strengthening currency as it undermines profits from exports to countries, including Australia and Germany. The won is trading around 1,020 to $1 USD. Hyundai’s Korea Automotive Research Institute issued a forecast earlier this week that the currency will rapidly appreciate during the second half of 2015, a forecast Rocha believes to be higher than GM Korea’s own prognostication:

We see an appreciation, but not at that level. Korea has many big exporting conglomerates and I don’t think the economic group of President Park will allow this to get derailed.

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S&P Delivers Junk Status On Tesla http://www.thetruthaboutcars.com/2014/05/sp-delivers-junk-status-on-tesla-stock/ http://www.thetruthaboutcars.com/2014/05/sp-delivers-junk-status-on-tesla-stock/#comments Wed, 28 May 2014 12:00:56 +0000 http://www.thetruthaboutcars.com/?p=833497 550x365xtesla-model-s-logo-550x365.jpg.pagespeed.ic.C2rTVvi0LG

Though still riding high all over equity markets, Tesla’s debt offerings took a severe hit in status when Standard & Poor’s bestowed a rating of junk status due to increased possibility of default by the EV automaker.

Automotive News quotes Standard and Poors

[Tesla has a] arrow product focus, concentrated production footprint, small scale relative to its larger automotive peers, limited visibility on the long-term demand for its products and limited track record in handling execution risks that could arise in managing high volume parallel production.

The automaker issued $920 million of 0.25 percent unsecured convertible senior notes due in 2019, another $1.38 billion in 1.25 percent unsecured convertible senior notes with a date in 2021, and a previous issue of such notes due in 2018 totaling $660 million. The notes are being used to fund two Gigafactory projects and further development of the Gen III EV platform meant to underpin the compact vehicle formerly known as the Model E.

In the meantime, the rating company expects the debt to remain stable over the next 12 months in part to improvements on the company’s gross margins. The rating also offers the potential for high returns for investors who know the risks and rewards the status entails.

Correction: An earlier version of this story incorrectly termed Tesla’s stock as “junk”, when it should have referred to Tesla’s debt offerings. We regret the error.

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FTC Launches Investigation Into Deceptive Marketing Of Biweekly Payments http://www.thetruthaboutcars.com/2014/05/ftc-launches-investigation-into-deceptive-marketing-of-biweekly-payments/ http://www.thetruthaboutcars.com/2014/05/ftc-launches-investigation-into-deceptive-marketing-of-biweekly-payments/#comments Fri, 23 May 2014 13:00:53 +0000 http://www.thetruthaboutcars.com/?p=829377 PA also 225

The Federal Trade Commission is launching an investigation into biweekly payments sold as a product by dealership finance departments on the basis that consumers may not be getting their money’s worth with such payments.

Automotive News reports the National Automobile Dealers Association’s Legal and Regulatory Affairs unit “received a number of questions and comments about biweekly payment F&I products,” and that the FTC recently issued civil investigative demands — requests for documents and/or testimonies — to dealerships regarding how biweekly payments are marketed by the latter’s finance departments. The organization emphasized to its members that finance employees are aware of and are properly trained “to accurately and adequately disclose all fees and costs, and not to overstate any potential benefits.”

Though biweekly payments are meant to bring consumers out of negative equity and the overall loan debt faster than other methods, NADA delivered an example where the fees associated with such payments ultimately hinder any savings on interest. The example given has a consumer save $656.61 on interest for a $27,342.96 loan on a vehicle, but pays $613.50 in total fees over 110 payments, providing little value for the consumer.

NADA concludes by warning dealers that deceptive marketing of savings allegedly offered by biweekly payments would land the dealers and their finance managers under the gun of the FTC.

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Endless GM Recall Parade Sign Of Industry-Wide Action To Come http://www.thetruthaboutcars.com/2014/05/endless-gm-recall-parade-sign-of-industry-wide-action-to-come/ http://www.thetruthaboutcars.com/2014/05/endless-gm-recall-parade-sign-of-industry-wide-action-to-come/#comments Thu, 22 May 2014 10:00:56 +0000 http://www.thetruthaboutcars.com/?p=828562 GM RenCen Storm Clouds

Detroit Free Press posits the endless recall parade General Motors has been leading since late February 2014 may be doing more harm than good for public perception or its bottom line. Though spokesman Greg Martin claimed the recalls were an effort to make his employer “a first-class safety organization” by focusing hard upon the consumer, a survey by AutoTrader found 51 percent of auto consumers were less confident in the industry’s overall safety record as a result of the actions by GM, up from 44 percent who thought the same five days’ earlier. In addition, the automaker will take a $400 million charge in Q2 2014 for the recalls since April 1 as of this writing, while its current stock price of $33.07 per share is a few cents above its IPO price from November 2010.

Autoblog continues on this thread, proclaiming what GM is doing is the beginning of an industry-wide shift toward issuing full recalls for any flaw in a given product, all under heightened scrutiny from the public and government regulators. For the first months of this year alone, all automakers have recalled a total of 22.4 million vehicles, the bulk of which belong to GM. Kelly Blue Book analyst Akshay Anand says the parade is a double-edge sword, particularly for the General; while such recalls are a sign automakers are being proactive in ensuring their products are as safe as they can be, consumers may perceive the effort as a sign automakers are failing to do their job well in the first place.

Automotive News follows with Fiat Chrysler Automobiles CEO Sergio Marchionne, who stated in a panel discussion at the Brookings Institute this week what else might occur when the GM-led parade becomes a permanent fixture in the industry:

If effectively this frequency of recalls becomes a norm, if everybody starts doing this, then I think you will see this cost being shifted to the consumer. It will transfer itself over onto the selling price of the vehicle.

Marchionne adds automakers, in turn, will act more sensibly in handling potential defects in product, noting punitive actions — such as paying $35 million in fines to the National Highway Traffic Safety Administration — will have little in the way of such handling when reputation is the bigger issue for the industry as a whole.

Speaking of the main parade itself, Autoblog reports 218,000 2004 through 2008 Chevrolet Aveos have been recalled due to the daytime running light module in the instrument panel possibly overheating, melting and setting the vehicle ablaze. According to spokesman Alan Adler, the automaker is “aware of some fires” so far, and is working on a fix for the module. Adler adds that while he doesn’t know when the fix will come, GM will send a second notice to owners when the time comes to schedule repair work.

Detroit Free Press concludes by explaining why GM continues to issue recalls as it combs through its records to avoid another decade-long delay in taking such action:

  • The government has ordered the automaker to meet with the NHTSA monthly on investigations and recalls as part of the former’s $35 million settlement with the latter
  • GM CEO Mary Barra’s appointment of Jeff Boyer to global quality chief — with the mandate to report directly to her if necessary — means anything deemed dangerous or otherwise unknown, including previously unreported defects — are up for attention
  • The automaker’s investors prefer to get the bad news out of the way and accept whatever potential pain awaits in as few quarters as possible, even if no one is happy about swallowing such medicine in the first place

The Freep also provided a list of every recall from January through this week, minus the latest recall issued Wednesday; total recall to date is 18,666,842.

GM

On the sales front, Automotive News reports dealers won’t be able to sell any of the 2009 through 2014 Chevrolet Traverse, Buick Enclave and GMC Acadia crossovers thanks to a stop-sale order issued in a recall involving the front seat belt cable in the vehicles. The order comes during one of the biggest sales weekends of the year, putting a damper on potential Memorial Day promotions. Though dealers could still close on sales without actually allowing the vehicle to leave the lot, no test drives can be carried out in affected demonstrators, making such sales more difficult. GM is offering an end-of-month incentive to maintain May sales momentum, but that may not be enough to offset the extra floorplanning costs if few vehicles can be sold until the affected units are repaired.

Back in the Beltway, Barra met with U.S. Senator Claire McCaskill of Missouri and other members of Congress to discuss recent findings in the February 2014 ignition switch recall. Though spokesman Greg Martin confirmed the meetings did take place, he did not give details on all that was said between Congress and the CEO.

Meanwhile, members of the Obama administration who helped assemble the rescue packages for both Chrysler and GM said they knew nothing about the out-of-spec switch at the heart of the recall maelstrom when said packages were crafted between them and the automaker’s senior execs. One member, Harry Wilson, stated that even if the task force asked GM point-blank about the switch, he doubted they would ever get a straight answer. Lead adviser Steven Rattner added that as far as he knew, the execs before him then didn’t know about the problem; therefore, neither could his task force.

Over in Texas, Bloomberg both GM and supplier Delphi have asked the Texas Supreme Court to combine four suits linked to the switch into one state case. The claim is fighting each one separately would cost the duo time and money, while combining the four and rolling subsequent cases going forward into a single case would “eliminate duplicative discovery, void conflicting pretrial rulings, conserve judicial resources, be more convenient for the parties and witnesses and otherwise promote a more just and efficient conduct of this litigation.” The cases mention involve wrongful injury and death.

With GM’s cadre of lawyers coming under the gun now, Detroit Free Press reports the automaker’s general counsel Michael Millikin has named attorney Lucy Clark Doughtery to advise Boyer and product development chief Mark Reuss. Millikin is also working with independent lawyer Anton Valukas on the internal investigation into why GM handled the recall the way it had. The general counsel’s own future with the company has been called into question, though GM claims Millikin has no “current plans to retire” at this time.

In financial news, Automotive News says GM Financial is preparing to go under its own test of scrutiny of loans originated by its dealership network in an effort to avoid punitive action by the Consumer Financial Protection Bureau based on allegations of discrimination in lending rates among minority consumers. The lender’s chief compliance officer, Dan Bickmore, says his role is to help reorganize the company into compliance with the CFPB, going as far as to establish a new compliance department and boosting the lender’s complaint management process and fair lending areas. He also aims to help educate dealerships on appropriate lending policies to prevent discrimination of protected classes when drafting a loan or lease contract.

On the design front, global design chief Ed Welburn says that with GM’s line of vehicles sharing the same technology and functionality with each other, styling will be needed to help differentiate each unit. He goes on to say the automaker has committed a few design sins in the past, favoring functionality over style and charm, as well as decontenting interiors when a product was overbudget. Welburn concludes that the new guard leading GM “really cares about interiors now, and it shows,” such as the interiors in the 2014 Chevrolet Corvette and Cadillac ELR.

Finally, The Detroit News says the 2015 GMC Sierra All Terrain HD will go on sale this summer. The pickup will be available in 2500 and 3500 weight classes with double and crew cab options, with trim lines to include SLE, SLT and Z71. Power is expected to come from a standard 6-liter gasoline engine, with a twin-turbo Duramax diesel on the options list.

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Toyota Turns Away From Batteries, Toward Fuel Cells http://www.thetruthaboutcars.com/2014/05/toyota-turns-away-from-batteries-toward-fuel-cells/ http://www.thetruthaboutcars.com/2014/05/toyota-turns-away-from-batteries-toward-fuel-cells/#comments Wed, 21 May 2014 13:00:19 +0000 http://www.thetruthaboutcars.com/?p=828210 Toyota FCV Concept

After 20 years of pursuing a battery-powered future, Toyota has decided to take a different course powered by hydrogen.

Automotive News reports Toyota North America CEO Jim Lentz says his company sees EVs’ viability “in a select way, in short-range vehicles that take you that extra mile, from the office to the train, or home to the train, as well as being used on large [corporate] campuses.” This view is reflected in the decision to end its purchase agreement with Tesla of battery packs for 2,600 RAV4 EVs over three years, which Lentz personally felt future investment into the agreement would be better spent developing hydrogen fuel cells instead.

Speaking of such things, Toyota’s commitment toward a hydrogen future includes a $7 million “arms-length” investment in FirstElement Fuel Inc. — the startup founded by former General Motors and Hyundai executive Joel Ewanick — in its plan to build 19 hydrogen fueling stations throughout California by the autumn of 2015. The automaker’s own research found that 68 stations would be needed in California to meet the needs of 10,000 fuel cell vehicle owners, 50 of which are expected to come online by the end of 2016.

Lentz says he hopes his company won’t be alone in developing the emerging market like it was when the Prius first arrived. So far, Toyota, Honda and Hyundai are working on new fuel cell vehicles to help spur demand, the first of which are predicted to arrive in 2015.

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Analysis: Toyota Could Bring $7.2 Billion To Texas Over Next Decade http://www.thetruthaboutcars.com/2014/05/analysis-toyota-could-bring-7-2-billion-to-texas-over-next-decade/ http://www.thetruthaboutcars.com/2014/05/analysis-toyota-could-bring-7-2-billion-to-texas-over-next-decade/#comments Fri, 16 May 2014 10:00:26 +0000 http://www.thetruthaboutcars.com/?p=821306 Toyota Texas

Toyota’s big move from California to Texas may also bring a big return for Plano, Texas over the next decade, to the tune of $7.2 billion of economic activity.

Bloomberg reports an analysis by Chicago-based Grant Thornton LLP claims the $7.2 billion includes $4.2 billion from payroll taxes, as well as direct and indirect payments, and revenues from sales and property taxes. The analysis was issued on the same day Plano approved a large incentive deal for Toyota, including $6.75 billion in grants and property tax discounts. The state government also approved an incentive package, totaling $40 million.

The report also notes the move and consolidation of Toyota’s operations in the United States to Plano from California, Kentucky and New York, announced last month, is expected to bring as many as 3,650 full-time employees with an average salary of $104,000 by 2018.

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Foxx, Obama Administration Urge Congress To Act On Funding Highway Trust http://www.thetruthaboutcars.com/2014/05/foxx-obama-administration-urge-congress-to-act-on-funding-highway-trust/ http://www.thetruthaboutcars.com/2014/05/foxx-obama-administration-urge-congress-to-act-on-funding-highway-trust/#comments Thu, 15 May 2014 14:00:58 +0000 http://www.thetruthaboutcars.com/?p=820890 traffic

With 112,000 infrastructure projects and 700,000 jobs at stake, the Obama administration and Secretary of Transportation Anthony Foxx are both urging Congress find a way to provide funding to the United States Highway Trust Fund before the well goes dry as early as August.

Autoblog reports both parties offered Congress a four-year funding bill that would help raise the needed funds through tolling by individual states, and through closing a loophole on deferred corporate taxes on overseas earnings, which alone would bring $150 billion to the table.

In the Senate, an alternative bill is in the works that would retain funding levels at $105 billion annually with interest for six years, though sourcing the funds would come at a later date. Meanwhile, Republican legislators aren’t keen on raising taxes to fund the trust, especially during the 2014 election season.

As for why the fund is running dry, an 18.4-cent-per-gallon fuel tax issued in the 1990s hasn’t been raised in over 20 years to keep up with increased fuel efficiency among new vehicles, with more increases coming down the CAFE pipeline.

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Chrysler Capital Waxes, Ally Wanes On Q1 2014 Auto Financing Originations http://www.thetruthaboutcars.com/2014/05/chrysler-capital-waxes-ally-wanes-on-q1-2014-auto-financing-originations/ http://www.thetruthaboutcars.com/2014/05/chrysler-capital-waxes-ally-wanes-on-q1-2014-auto-financing-originations/#comments Thu, 15 May 2014 12:00:26 +0000 http://www.thetruthaboutcars.com/?p=820842 Chrysler Capital Booth

Doing business with Chrysler proved to be a boom for Santander Consumer USA’s Chrysler Capital during Q1 2014, while former lending partner Ally Financial experienced a painful bust on its Pentastar originations.

Automotive News says Ally’s volume was at zero for incentivized new-vehicle loans with Chrysler, down from $231 million a year earlier. Standard-rate loans fell 32 percent to $708 million, and leases dove 67 percent to $257 million in relation to Q1 2013, as well.

Meanwhile, Santander’s Chrysler Capital raked in $3.5 billion loans and $1.2 billion in leases as part of an overall $6.9 billion in consumer lending for the outgoing quarter, having made only $2.8 billion in total originations in the previous year.

Santander launched the new lending division after Ally’s agreement with Chrysler Group ended last year after a four-year run, a relationship the latter may take a while to get over; Ally filed a lawsuit last September against Santander Consumer USA, citing copyright infringement and misappropriation of trade secrets in the launch of Chrysler Capital. Santander proclaimed in its SEC filing that it will fight the suit.

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No Credit Score? Show Your Cable Bill, Get Approved http://www.thetruthaboutcars.com/2014/05/no-credit-score-show-your-cable-bill-get-approved/ http://www.thetruthaboutcars.com/2014/05/no-credit-score-show-your-cable-bill-get-approved/#comments Wed, 14 May 2014 11:15:37 +0000 http://www.thetruthaboutcars.com/?p=819906 450x304xavenger1-450x304.jpg.pagespeed.ic.pDSlDpswsq

New technology is allowing buyers with no credit score – due to a lack of credit history or a personal bankruptcy – to get vehicle financing via examination of documents like the payment history of their cable or cell phone bill.

Automotive News reports that companies like Equifax can provide information for customers who have been diligent about paying their bills, even if they have not yet tapped traditional lines of credit.

Lou Loquasto, who runs auto finance for Equifax, told AN

“One thing that Equifax and others have is nontraditional credit. Equifax can tell a lender, ‘Hey, this customer has a $200 cell phone bill, they’ve got $400 in utilities, they’ve got $100 in cable, and they’ve had this for four years. They’ve paid perfect.”

Of course, there’s also the question of whether this initiative is just a way to issue more subprime loans, which can then be securitized and sold to yield-hungry investors. That’s usually been the big fear with extending credit for auto loans, but an Equifax economist told AN that there are other ways of looking at data over a longer timeline

“They’re not subprime individuals, they just have a subprime credit rating…There’s a lot of connotations with that, and I think it’s wrong, particularly after what we’ve seen with the recession, where a lot of people fell on hard times. Bad things happen to good people, and a lot of it is out of their control.”

A TTAC source at an OEM captive finance arm concurred with this assessment, telling us that they have spent a fair amount of effort in retaining customers who once leased their vehicles, but had fallen on hard times during the recession. Their less than stellar credit scores were the result of circumstances, rather than delinquent payment histories, and getting them back into a new lease was a goal for the captive.

Even so, a healthy dose of skepticism is required when taking a look at subprime auto loans. A February report by RatingsDirect shows that both losses and delinquencies are on the rise, while the market remains hungry for these types of loans. As a result, underwriting standards are changing as more and more consumers are being approved – including many who might not get financing in the first place. All of this adds up to a riskier loan pool, and the rise in losses and delinquent payments isn’t expected to fall any time soon.

 

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Nokia Enters Connected Vehicle Fight With $100M Investment Fund http://www.thetruthaboutcars.com/2014/05/nokia-enters-connected-vehicle-fight-with-100m-investment-fund/ http://www.thetruthaboutcars.com/2014/05/nokia-enters-connected-vehicle-fight-with-100m-investment-fund/#comments Mon, 12 May 2014 12:00:52 +0000 http://www.thetruthaboutcars.com/?p=819377 nokia evolution brief

Having moved its smartphone business to Microsoft, Nokia’s next project is a $100 million investment fund for companies specializing in smart cars.

BBC News reports the fund will be administered by Nokia Growth Partners, while Nokia itself aims to bring its navigation offerings — one of three key points the Finnish company will pursue alongside networks and new technologies — into the connected car market.

Nokia is only the latest to enter into the fray, with Google, BlackBerry, Apple and Intel — who has its own $100 million fund for the rapid development of Internet-connected vehicles — seeking to make their mark on the potentially disruptive market. While Google’s Android will soon find its way into offerings by Hyundai and Audi, Apple’s iOS-based CarPlay has found partners in Ferrari and BMW.

As for what’s at stake for all who enter, the connected car market promises to not only bring the smartphone experience into the vehicle, but to connect vehicles with each other, altering driving behaviors while increasing safety as NGP partner Paul Asel explains:

For the last few years there has been a surge in innovation that has brought technological advances leading to safer, cleaner, increasingly connected, intelligent and more affordable vehicles. Vehicles are becoming a new platform for technology adoption very similar to phones or tablet.

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Tesla-Toyota Battery Deal For RAV4 EV Concluding By Year-End http://www.thetruthaboutcars.com/2014/05/tesla-toyota-battery-deal-for-rav4-ev-concluding-by-year-end/ http://www.thetruthaboutcars.com/2014/05/tesla-toyota-battery-deal-for-rav4-ev-concluding-by-year-end/#comments Mon, 12 May 2014 10:00:42 +0000 http://www.thetruthaboutcars.com/?p=819329 2013 Toyota RAV4 EV, Exterior, Photography Courtesy of Alex L. Dykes

Tesla’s deal with Toyota to supply the automaker with battery packs and motors for the latter’s RAV4 EV will come to a close by the end of 2014 at the same time the electric crossover is expected to cease production.

Bloomberg reports Toyota announced in May of 2012 that it would purchase components from Tesla for 2,600 RAV4 EVs over three years with the possibility of extending the agreement. With word that the EV would cease production at the end of this year, however, Tesla announced in its quarterly filing — where it proclaimed that the deal netted $15 million for Q1 2014 — that related production would draw to a close, as well.

Meanwhile, Toyota spokesman John Hanson claims the EV hasn’t been cancelled, nor has his employer “made any announcement about the relationship or what [Toyota will] do with Tesla in the future.” To date, 1,594 of the $50,000 electric crossovers have left California showroom since 2012.

In the meantime, Toyota will introduce in 2015 a hydrogen fuel sedan based upon the FCV Concept introduced in late 2013, while Tesla — in addition to its own product plans — will boost component production for Daimler AG, who, like Toyota, is an investor in the EV automaker.

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