Captives to gain state support as car industry crisis deepens

RCI Banque and Banque PSA Finance, the
captive finance arms of Renault and Peugeot-Citroën, are to receive
an injection of French government cash. The French state will
provide refinancing funds of €1bn (£945m) to the two captives –
€500m (£473m) each. The €1bn total, of which some €779m (£736m) has
already been freed up, with the remainder to be provided before the
end of January, could be supplemented further “as necessary”, said
French president Nicolas Sarkozy. CEO of RCI Banque, Philippe Gamba
indicated that the captive could need up to €4bn (£3.8bn) – up to
eight times what it has been allocated so far. 

The funds from the public purse have been provided along with a
stern official warning that the carmakers must use the state
support to develop and invest in their operations in France. Total
new car sales in France last month were down by 14 per cent
compared with November 2007, according to data provider JATO,
although new car sales in the year-to-date were slightly up on the
same time last year, growing by 0.8 per cent to 1.9m units.

In Germany, the CEO of Volkswagen Financial Services (VWFS),
Frank Witter said that the captive needed state aid in order to
avoid passing on the full impact of the higher cost of funding to
its customers. “No-one can subsidise the current credit spreads in
the long run,” he said. VWFS and VW Bank were the first German
motor finance entities to apply for help from the German
government’s banking support package. Witter said that VWFS
anticipated its full-year pre-tax profits to be in line with 2007’s
figure, but predicted a weaker result in 2009. VWFS has annual
refinancing needs of some €15bn (£14bn).

Detroit uncertainty

Detroit’s Big Three automakers are still in the firing line.
After an initial bid for $25bn (£16bn) then a subsequent plea for
$34bn (£22bn) in federal loans were both shot down by the US
government, a much-reduced $14bn (£9bn) car manufacturer bailout
bill was submitted to the Senate – and defeated on December 12.
Both Chrysler and General Motors (GM) will run out of cash early in
the New Year unless government funds are made available, the
carmakers said.

Chrysler has warned its US dealers that its captive Chrysler
Financial may have to suspend temporarily provision of stocking
finance. GMAC, meanwhile, is attempting to raise $30bn (£19bn) in
order to fulfil the requirements for its application to become a
bank holding company, a strategy which it hopes will allow it to
access the US government’s $700bn (£450bn) Troubled Assets Relief
Program fund. The former GM captive is attempting to swap $38bn
(£24.5bn) of debt for cash, preferred stock or new notes. If the
attempt to become a bank holding company fails, the “potential for
a bankruptcy filing by [GMAC or its mortgage subsidiary ResCap] would be high”, said ratings agency Standard & Poor’s.

In the UK, senior managers from Jaguar and Land Rover met
business secretary Lord Mandelson, to discuss government help for
the two brands, owned by Tata Motors. Mandelson said the government
would not provide an “open chequebook”, but that fundamentally
strong businesses hit by circumstances outside their control could
well qualify for state support.

Sue Robinson, director of the RMIF’s National Franchised Dealers
Association, called on the government to introduce a scrapping
incentive scheme along the lines of the one available in France,
where the government provides a €1,000 bonus to anyone turning in a
car over 10 years old, and purchasing one emitting no more than
160g/km CO2. “This RMIF initiative is gathering momentum,” Robinson
said.

Jo Tacon