No Direct Relief For Inventory-Laiden Dealers, DC Financial Says

DETROIT – Chrysler Group dealer inventory gluts are best addressed in the marketplace, through incentives, not by offering cost-relief, says Klaus Entenmann, president and CEO of DaimlerChrysler Financial Services Americas.

“The best inventory program is a good solid retail financing program,” Entenmann tells an Automotive Press Assn. Luncheon here, adding the auto maker will launch a retail incentive program to close out the year, in accordance with the industry custom.

Meanwhile, Chrysler dealers are reeling from cost burdens resulting from high inventories. Dealer inventories began to climb mid-year as consumers, intimidated by volatile gasoline prices, turned toward cars and away from pickups and SUVs – 70% of Chrysler’s U.S. mix.

Then the auto maker added to the problem by failing to adjust its production schedule, which also inflated a stockpile of vehicles Chrysler maintains, but does not count among its official inventory.

Further compounding the issue are interest rates, which have nearly doubled in two years, Entenmann adds. This results in “a higher challenge” for dealers, he says. “Nobody is happy about this.”

Dealer financing, including inventory financing, accounts for 17% of DC Financial Services’ portfolio.

Entenmann offers no details regarding the nature of Chrysler’s year-end incentive program but suggests the auto maker has led the industry in terms of creative financing.

Klaus Entenmann

This is the year of 0% financing, while 2005 was the year of 72-month financing and 2004 was the year of bonus cash, he says.

“The bonus cash message was an interesting message because it caught the ear of the consumers,” Entenmann adds. “Therefore, it worked.”

Chrysler sales rose 3.8% in 2004, compared with the previous year, according to Ward’s data. That represents a 17.2% swing when 2003’s 13.4% sales decline is factored in.

Through October, Chrysler sales are down 9% compared with the first 10 months of 2005.

Entenmann uses the occasion to outline DC Financial’s commitment to its customers as a hedge against losses. DaimlerChrysler’s financial arm tries to work with delinquent customers instead of immediately initiating repossessions, he says.

“(A customer) says, ‘When I was in trouble, Chrysler Financial called. They didn’t beat me up. They found a solution.’ Once you repossess a car, you will lose a future customer,” Entenmann explains.

DaimlerChrysler Financial employs 11,000 people in 39 countries and also serves the parent company’s Mercedes-Benz business. Its global portfolio is worth $144 billion.

DaimlerChrysler reports its third-quarter earnings Oct. 25. It expects to reveal a loss of $1.5 billion, more than twice the previously anticipated $635 million forecast before the impact of the production overrun was calculated.

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