MOODY'S LOWERS GM DEBT RATING

February 22, 2006—Moody's Investors Service knocked General Motors' debt further into junk bond territory Tuesday and revived talk about the big car company needing the protection of bankruptcy to survive. The downgrade to B2, five steps lower than investment grade and six steps above Moody's worst rating, reflects "increased uncertainty that the company will be able to achieve all of the steps necessary to establish a competitive wage, benefit and supplier cost structure outside of bankruptcy," Moody's said. "It's disappointing, and we disagree with their skepticism about our ability to execute our turnaround plan," GM financial spokeswoman Toni Simonetti said. She noted that GM has $19.5 billion cash on hand and isn't selling new bonds that would require GM to pay high interest rates because of the poor credit rating. GM CEO Rick Wagoner said in a note to employees, filed as an 8-K report with the Securities and Exchange Commission Nov. 17: "I'd like to just set the record straight here and now: There is absolutely no plan, strategy or intention for GM to file for bankruptcy." (USA Today)

SALES OF BIG PICKUPS ARE BEGINNING TO STALL

February 22, 2006—Despite a fiercely loyal customer base, full-size pickups have started to lose steam in what could be a troubling sign for Detroit's automakers. Half of full-size pickups on the market saw sales decline in 2005, and nearly all models stumbled out of the gate in 2006. Unsold trucks are piling up at dealerships, and several automakers, including Nissan Motor Co., have been forced to cut truck production. Despite the recent slowdown, Detroit automakers say the full-size pickup category remains stable and declines are to be expected after record sales in 2004. "It's still the largest segment out there," said Joe Veltri, director of Dodge truck marketing and product planning at DaimlerChrysler AG's Chrysler Group. Even with fluctuations in sales, Detroit automakers say the category will remain strong in the coming years, with domestics holding their lead even as foreign rivals try to make deeper inroads. Protecting their turf in full-size pickups will be especially important to Ford Motor Co. and General Motors Corp. as they try to recover from losses in their home market, and to Chrysler as it seeks to keep its recent turnaround on track. Foreign automakers such as Toyota Motor Corp. also have placed huge bets on the full-size truck category. (Detroit News)

[FOOTNOTE: NADA chief economist Paul Taylor reports that sales of pickup trucks reflect a stumble in economic growth during the fourth quarter of last year, largely the result of higher, and very variable, energy costs. It caused business buyers to postpone pickup truck purchases. Also, sharply rising gasoline prices caused many households to reconsider what was a growing trend of commuting to work in full-sized pickup trucks, in part because of their often modest initial purchase price. Business buying should improve during a year when real, inflation-adjusted GDP growth is expected to be over 3 percent. The adjustment of households to higher gasoline prices awaits a clear and sustained moderation in those prices. Prices of regular gasoline are currently falling under $2 in some parts of the country.]

FORD EXEC PLANNING PHOENIX DEALERSHIP

February 22, 2006—Ford Motor Co.'s outgoing sales chief for North America said he will spend as much as $15 million on a new Ford dealership in Phoenix, calling his investment a vote of confidence in the automaker's turnaround plans. "I've been around Ford a long time in a pretty senior position," said Group Vice President Steve Lyons, 57, who will leave his post March 1. "I know what our product plans are." He said he "would not invest $10 million or $15 million of my own assets" if he believed the company's plans wouldn't succeed. The Ford-brand dealership will open next year in northwest Phoenix, Lyons said Monday. "At this point, we don't do too many new dealerships anymore," he said. "Last November I talked to the company about the opportunity."  Lyons has headed Ford's North American sales, service and marketing since April. Ford announced Lyons' retirement last month and said Francisco Codina would replace him. Codina met with company dealers during the National Automobile Dealers Association convention in Orlando this month. (Bloomberg News)

USED CAR DEALERS SPEED AHEAD

February 22, 2006—New jobs often lead to used car purchases for people re-entering the workforce, economists say. That makes this a good time to be in the used car business. The rock-bottom interest rates of the last few years were a sign that the Federal Reserve thought the economy was in trouble, that businesses and consumers need to be coaxed into spending. Now, rising interest rates and other indicators show the economy gaining momentum. Earlier this month, the chief economist for the National Automobile Dealers Association advised members at their annual convention in Orlando, Fla., that one way to profit from the turnaround is to grow their used car operations. "Unemployment—as low as 4.7 percent recently—and an average of 200,000 people per month returning to work creates many used car customers and a few additional new car customers," said Paul Taylor. Tom Kelley, president of Kelley Automotive, said consumers are willing to drive farther to buy a new car than a used one. That's why he has targeted smaller communities surrounding Fort Wayne for his master plan to grow to 15 or 20 used car locations in northeast Indiana and northwest Ohio. (Ft. Wayne Journal Gazette)

PONTIAC WILL DROP THE GTO THIS YEAR

February 22, 2006—General Motors has told Pontiac dealers that it will discontinue the GTO coupe at the end of this model year. GM will make the last deliveries of the vehicle to dealers by the end of September, sources close to Pontiac say. The vehicle was criticized for bland styling, and some fans of the original GTO complained that it lacked nostalgic styling cues. Pontiac will continue to build the GTO through the end of May, says Jim Hopson, Pontiac spokesman. The last "boatload will hit the ground in June", he adds. (Automotive News)

COMMENTARY: DEALERS IN THE U.S. ARE DIFFERENT (KEITH CRAIN)

February 22, 2006—During last week's NADA convention in Orlando, Fla., I chatted with an acquaintance from Germany who had never been to an NADA convention before. He was bewildered. The array of products and services that were displayed on the convention floor was mind-boggling to him. There is nothing like that in Germany. If you go to a German trade show for new-car dealers, all you will see are hoists for the service department. And that's why automobile dealers in the United States are so different ... In the United States, the primary purpose of the franchised dealer is to sell cars and trucks. Service is important, but it is only a secondary reason for the franchise. What a difference that makes. Just about everything at the NADA exposition is there to help dealers sell more cars and trucks. Sure, dealers have to have a strong customer satisfaction rating, and they must have a strong service department; but when you walk down the aisles at NADA, the exhibitors are going to tell you how to sell more and earn more. That may be why the U.S. car market is so large and exciting. When you realize that most of the energy goes to selling cars and trucks, it becomes apparent why we're selling almost 17 million new vehicles a year. The mentality is different. In Europe, there are still a lot of subdealers whose sole function is to provide service for a particular geographic area. They may sell only one car a month. The mind-set is different. It should not surprise anyone that the sales volume in Europe also is considerably different. (Automotive News)

NEW NADA CHAIRMAN FOCUSES ON FUTURE WITH TROUBLED MAKERS

February 21, 2006—William Bradshaw, the new chairman of the National Automobile Dealers Association, assured dealers that he will focus on improving industry relations, particularly with troubled automakers.  In his inaugural address at the NADA convention, Bradshaw acknowledged that dealers will face tough challenges this year, particularly as Ford Motor Co. and General Motors struggle financially.  "The restructuring plans of some automakers, with their streamlining operations and the announced introduction of many desirable new products, are very encouraging and indicate that they plan to be here for the long haul," said Bradshaw.  "But we also have some concerns.  How long will it take for the new marketing direction and new products to catch on?  Will cost be transferred down to the dealers? What does our future look like? These concerns are real."  Bradshaw, whose dealerships are in South Carolina, said he will promote dialogue with automakers to ensure that dealers can give input before the factories set policies.  He said NADA would emphasize in those discussions that any efforts to streamline dealer networks should be driven by market forces - not manufacturer edict.  "Manufacturers need to do what they do best - design and build exciting products," he said.  "And let us do what we do best - sell and service cars and trucks and take care of our customers." 

Bradshaw outlined other top issues:

• NADA will continue efforts to prevent title fraud.  "We will continue to urge insurance companies to release total-loss information, not only about flood vehicles but wrecked vehicles as well," he said.  The association will lobby for federal legislation to eliminate title washing.
• NADA will continue to push for the permanent repeal of the federal estate tax.  "This is a prime example of double taxation, and it should be eliminated," he said. 
• The association will step up efforts to raise public awareness of career opportunities at auto dealerships. NADA will organize career week. In October more than 700 dealers in 44 states hosted career events at their dealerships.

(Automotive News)

SALES AND SERVICE JOBS ARE PLENTIFUL DESPITE AUTO INDUSTRY'S SLUMP

February 21, 2006—According to a report released last week in Orlando at the 89th annual meeting of the National Automobile Dealers Association, nearly all of the nation's automotive retail outlets are scrambling to find qualified people to help run their businesses. The head-hunt is on even at dealerships selling products made by General Motors Corp. and Ford Motor Co., which have spent much of the past year struggling to halt erosion of sales and market share. The employment report, based on a survey by Harris Interactive Inc., a market-research firm in Rochester, N.Y., estimates that 104,803 career job slots are available at the nation's dealerships, with most of them in the South Atlantic region, which includes the District, Maryland, Virginia, West Virginia, Delaware, Florida, Georgia, North Carolina and South Carolina. In all, 24,647 auto dealership jobs are going begging in the South Atlantic, according to the survey by Harris, which is widely known for its publication of the Harris Poll. "America's franchised auto dealers are hanging out the help-wanted sign all across the country," said Alan C. Starling, chairman of Automotive Retailing Today, a coalition of major automotive manufacturers and dealer organizations. Nationally, according to the Harris survey, most of the available dealership jobs—42,198 of them—are in sales. The second-largest number of vacancies is in service—37,329. There are an estimated 7,120 administrative and clerical jobs open and another 6,903 slots available for managers.
(The Washington Post)