Special Coverage

NADA Convention & Exposition

SAN FRANCISCO – Dealers can expect another challenging year as auto analysts predict a significant sales downturn in 2008, a panel of top automotive finance executives says.

“I think we’ll see more incentives this year,” Ford Motor Credit Chairman and CEO Michael Bannister tells attendees at an American Financial Services Assn. gathering here in conjunction with the annual National Automobile Dealers Assn. conference.

Banister cites reports that General Motors Corp. plans to do what is necessary to maintain sales near last year’s 16.1 million-unit level.

George Borst, president and CEO for Toyota Financial Services, says from “Toyota’s vantage point, much of the incentive strategy stems from where the vehicle is in its product cycle.” Incentives also are applied in special cases, such as the Tundra fullsize pickup that competes in a highly competitive market.

Stephen Smith, American Honda Finance Corp.’s senior vice president-financial services, says his company’s position is that “all cars should sell themselves,” and there should be no need for incentive programs. Yet, with 2008 shaping up as another tough year, higher incentives “unfortunately (are) to be expected.”

In good news for dealers, panelists say the year will see “business as usual,” meaning their firms are not pulling back or significantly changing their lending policies, despite the problems plaguing the mortgage industry.

“Our underwriting is going to be constant with the policies and patterns we’ve put in place over the last five years,” Bannister says of Ford Credit. “I’ve been running this company since 2002. We’ve amassed a huge database, and we know how customers are going to perform.”

Toyota Financial has tweaked its policies, somewhat, Borst says. “You have to look at this from both sides of the spectrum. On the lower end, we have improved analytics. So take someone with a 560 FICO (Fair Isaac and Co. credit score), we’re tightening down and requiring more verification, which is not a big part of our business.”

At the other end of the spectrum, Toyota is offering 84-month financing for the higher-end customers, he says.

However, Americredit Corp. CEO Daniel Berce says several firms, including his own, are tightening – and even cutting back – their subprime loan originations.

“We (were) more cautious throughout all 2007 in our subprime business,” he says, noting Americredit went from nearly 25% growth in subprime in first-quarter 2007 to significantly cutting back on that segment of its lending late in the year. Revenue for the independent financing firm is expected to be $5 billion to $6 billion this year, down from prior-year’s $9 billion.

Marc Sheinbaum, CEO for Chase Auto Finance, agrees, noting his company is seeing more subprime applications than normal due to the number of finance firms unwilling to take the risk.

“We’re definitely seeing a pullback – ever so slight – especially in the fringe areas,” Sheinbaum says. While Chase does not do much business the credit-challenged arena often, it is evaluating its risk disciplines “more aggressively than normal.”

“If you don’t know what you’re doing, then you can really get your clock cleaned,” he says.