ARI PUSH
October 2, 1998 WELCOME!

Automotive Resources International
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ARI PUSH No. 34
October 2, 1998

Prepared and distributed weekly by the ARI Communications Department. For ARI PUSH archives, visit our Web site at www.arifleet.com . For comments, E-mail address changes or deletions, call us at 856-727-7091 or E-mail at communications@arifleet.com.

TABLE OF CONTENTS

  1. LEASING BOOM PROVIDES ACCESS TO LUXURY
  2. GM MAY MERGE OPERATIONS
  3. GM PLANS ON-LINE CAR-BUYING SERVICE
  4. PEUGOT AND FORD FORM DIESEL ENGINE VENTURE
  5. TRUCK NEWS
  6. ADD-ONS ARTIFICIALLY PROP UP VEHICLE RESIDUALS
  7. CHRYSLER SEPTEMBER SALES UP 18%
  8. DIGEST
  9. FROM THE U.K.
1)LEASING BOOM PROVIDES ACCESS TO LUXURY
Source: Newsday, September 23, page D05

The used-car market has never been bigger. Why?
  • Leasing boom leaves massive inventory of cars and light trucks under 3 years old for resale
  • Especially true in the luxury market
  • When new-car quality improves, so, too, does that of used cars
  • Low year leases (2-3 years) keeps the quality of off-lease vehicles high
  • Programs for used cars have helped move the image, product and buying experience
  • Dealers now place more importance on used-car sales
  • Luxury-car manufacturers find used market helps broaden their buyer base
  • Pre-owned programs launched beginning with Mercedes in 1989
  • Sleek new styles often attract new buyers
2) GM MAY MERGE OPERATIONS
September 29, 1998: 3:22 p.m. ET

North American, international units could be combined to pare costs PARIS (Reuters) - General Motors Corp.'s aggressive push to combine vehicle platforms may ultimately result in merging the automaker's North American and international operations, Chairman Jack Smith said Tuesday. Smith told reporters at the Paris auto show that building numerous vehicles off common platforms is the top priority for the world's largest automaker because of the cost savings involved. "To the extent that we can do that smarter over time, that might occur," Smith said, referring to combining GM's North American Operations (NAO) and International Operations (IO). Earlier this year, GM shifted the International Operations' base to corporate headquarters in Detroit. The unit was established in 1994 and based in Zurich, Switzerland, where GM has its European headquarters.

GM has about 14 global vehicle platforms, which Smith said the company is trying to shrink to about seven. He said GM has a disadvantage that other automakers don't because it was formed by merging seven separate companies.
3)GM PLANS ON-LINE CAR-BUYING SERVICE
Source: USA Today, September 29, page 05B

How GM is positioning this interactive marketing tool:
  1. Customers can shop dealer inventories and negotiate car prices through the Internet, beginning next year.
  2. The new Web site, at www.gmbuypower.com, will let shoppers look up vehicle specifications and options, search inventories and communicate electronically with dealers.
  3. The site also will allow buyers to compare GM vehicles with competitors' products
  4. Service attracted 650,000 Internet users during a 10-month trial in California, Washington, Oregon and Idaho
Countereffect on Industry Competitors:
  1. Ford Motor plans to add dealer inventories and e-mail to its www2.ford.com Web site by the end of the year
  2. Next year, Chrysler will upgrade its site, www.chryslercorp.com, to allow dealers to quote prices directly to customers
4)PEUGOT AND FORD FORM DIESEL ENGINE VENTURE
Source: The New York Times, Sept. 30, Page 3, Column 1

The situation between Peugot and Ford is:
  1. Joint venture to develop diesel engines
  2. Move signals the car industry's growing moves toward consolidation
  3. Both companies will share development costs estimated at $355 million
  4. Peugot is a leading producer of diesel engines, manufacturing about a million a year
  5. New engines to be produced in Peugeot's plant in Douvrin, France
  6. The new series of diesel engines should come to the market in two and a half years
5) TRUCK NEWS
* Freightliner to Invest $40 Million in Parts Plant: Freightliner plans to invest $40 million in its Gastonia Parts Manufacturing Plant over the next three years. The plant produces parts for four Freightliner truck and chassis manufacturing plants, American LaFrance fire trucks, the Mercedes-Benz Mexico truck plant, and distribution centers throughout North America. As part of the investment, there will be a 9,000-square-foot plant expansion and increase in the capacity of Gastonia's power plant. The addition is under way and scheduled for completion early next year. The increased power capacity will support new and expanded technology including eight presses, three lasers and a second E-Kote system. The $1.6 million laser welding system is the first of its kind in the world, according to Freightliner.

* Canada Vows to Fight U.S. Truck Inspection Crackdowns: The battle between northern agricultural states and Canada intensified last week, with Canadian truckers caught in the middle. The Canadian government requested consultations under both the North American Free Trade Agreement and the World Trade Organization to try to end the tough inspections that are keeping Canadian trucks from crossing into U.S. prairie states. Under the provisions of NAFTA, both sides have to meet within 15 days, 10 under the WTO. The dispute began nearly two weeks ago, when South Dakota Gov. Bill Janklow began barring trucks with Canadian farm commodities from entering the state unless they had new paperwork proving their cargo was free of certain drugs and diseases. The move was meant to send a message to the U.S. government to put an end to Canadian grain dumping. North Dakota and Montana soon started stopping truckers, as well, and Idaho is scheduled to start around-the-clock inspections today. The inspections will cover health and safety concerns, as well as highway weight and safety laws.

* NTSB Recommends On-Board Recorders, Simulators: After investigating a 1997 crash that killed eight people, the National Transportation Safety Board has made several recommendations on traction control, onboard recorders and simulator training. The board sent letters to trucking-related groups, including the American Trucking Assns., the Owner-Operator Independent Drivers Assn., the National Highway Traffic Safety Administration and the Teamsters. The most disturbing recommendation to many in the trucking industry was the use of onboard recorders. In a letter sent to the ATA, OOIDA, the National Private Truck Council and the Independent Truckers and Drivers Assn., the NTSB asked these groups to "advise your members to equip their commercial vehicle fleets with automated and tamper-proof onboard recording devices, such as tachographs or computerized recorders, to identify information concerning both driver and vehicle operating characteristics."

6)ADD-ONS ARTIFICIALLY PROP UP VEHICLE RESIDUALS
Source: Automotive News, Sept. 28, page 20, Finance & Insurance

The situation regarding add-on features on lease vehicles:
  1. Inflates residual value of vehicle at time of sale, but lowers values over time of lease
  2. Gold trim package, for example, adds $1,000 to sticker price and $500 to residual
  3. Automotive Lease Guide (ALG) has begun identifying which dealer-options raise resale value
  4. Add-one features that should be included in the residual are air conditioning, sunroof or CD changer
  5. Dealers and leasing companies ignoring ALG's recommendations
Reasons for the conflict:
  1. Holding residuals down by excluding add-ons such as gold packages raise the customer's monthly payment
  2. Higher payments threaten sales
  3. Dealer add-ons are highly profitable for dealers
  4. Computer programs that compare "buy vs. lease" don not take into account ALG's recommendations on options
  5. New MRM concept by ALG just another "hurdle" for consumer to jump before signing a lease
What are some solutions:
  1. ALG has published two residual value guides ^Ö one gives a dollar figure for the recommended residual; the second assess a percentage figure instead of a dollar figure to every vehicle
  2. ALG now assigns a Maximum Residual MSRP (MRM) to every vehicle, in addition to a percentage
  3. Ford Credit now specifies which options are eligible to be included in the residual value
7)CHRYSLER SEPTEMBER SALES UP 18%; Company Sets All-Time Model Year Record

AUBURN HILLS, Mich., Oct. 1 /PRNewswire/ -- Chrysler Corporation (NYSE: C)had its best model year ever, with 2.45 million vehicles sold in the U.S., including third-quarter volume that jumped 8 percent ahead of last year and September sales that were up 18 percent from a year ago.

The company set 13 model year sales records in model year 1998, including new watermarks for the Dodge Division, Dodge Truck, sport utility vehicles, Dodge Dakota, Dodge Ram, Dodge Stratus, Plymouth Breeze, Plymouth Prowler and Chrysler Sebring Coupe.

Total sales for Chrysler's model year -- October 1, 1997 through September 30, 1998 -- were 2,446,951, breaking the company's previous model year record, set in 1996, of 2,407,700 million vehicles. Total truck sales of 1,723,798 million were up 11 percent over last year, contributing to the best model year ever for company trucks. Chrysler sold 723,153 passenger cars during the past model year.

The model year tally for sport-utility vehicles was 590,759, a 24 percent increase over the previous model year. The previous volume record for SUVs of 489,436 was set in 1996. Total U.S. sales for September were 194,390, an 18 percent increase over last year. It was the best September in the company's history for truck sales, which totaled 131,559, a 17 percent jump from last year. The new record bested the previous September truck high mark, set in 1996, of 125,791 units.

Sales of passenger cars in September were also up to 62,831, a 22 percent jump over the same month last year. Eleven sales records were set in September, including monthly sales high marks for the Dodge Durango, the Dodge Intrepid, the Chrysler Concorde and for the Jeep(R) Wrangler.
8)DIGEST

*Japan Leasing Auto Corp, a Japanese automobile leasing company, filed for bankruptcy with nearly $930 million in debts after the failure of its parent company left it without support.

*The National Highway Traffic Safety Administration (NHTSA) recently gave General Motors Corporation's EV1 electric vehicle (EV) a three-star rating in frontal crashes. The rating means EV1, the first mass-marketed EV, now meets the recommended industry requirement for isolating an EV's batteries and limiting electrolyte spillage in crashes.

* American Honda reported an all-time record for model year sales today, totaling 993,540 for the 1998 model year ending last month -- 8.1 percent ahead of the model year 1997 record total of 919,413. Contributing to the increase are record Honda division sales of 891,541, up 10.9 percent over the 1997 record, and total Acura division model year sales of 101,999.

* SUV Sales Stay High for Mitsubishi Motors With 8 Percent YTD Increase; New Galant Shows Strength in Mid-Size Sedan Segment: Continuing to show strength in its sales of individual model lines, Mitsubishi Motor Sales of America, Inc.'s (MMSA) September sales reflect a 2 percent increase in passenger car sales, over the same period last year, and a 98 percent increase in monthly sales of the company's Galant mid-size sedan.

* Infiniti Reports September Sales; G20 Sales Up 14.4 Percent Over Previous Month: Infiniti reported September sales of 5,826 units. Calendar year-to-date sales for Infiniti reached 43,712 units, down 10.1 percent from the same period last year. The Infiniti G20 luxury sports sedan, new to showrooms in August, maintained solid launch momentum with 1,645 units retailed in September, up 14.4 percent over last month. Leading the division in sales was the I30 luxury sedan, with sales of 1,914 units. Calendar year-to-date sales for the I30 totaled 20,004 units. The Q45, which will receive numerous enhancements for the 1999 model year, had sales of 743 units, while the QX4 luxury sport utility vehicle recorded sales of 1,484 units during the month of September.

* Toyota Reports Strong Third Quarter and Best-Ever September Sales: Toyota Motor Sales (TMS), U.S.A., Inc., reported today best-ever September sales of 108,545 vehicles, up 42.6 percent over last year. Sales for the first three quarters, calendar-year-to-date (CYTD), totaled 997,185, an increase of 7.0 percent compared to the same period last year. The Toyota Division posted record September sales of 96,271, up 37.4 percent from last year. The Lexus Division set a September sales record with 12,274, up 102.4 percent. Lexus CYTD sales stand at 112,274, an increase of 58.7 percent over last year.
9)FROM THE U.K.

* Be realistic and stem losses, say U.K. disposal experts. Thousands of ex-company cars are failing to sell at auction because fleets are setting unrealistic reserve prices. These reserves are based on residual values set three years ago when the used car market was buoyant, and fail to take account of today's significantly weaker market. This means cars are attracting bids at auction of £300 to £400 below the prices listed in the trade's used car guides, and failing to sell because fleets are holding out for full guide value. 'Fleets need to be aware of current market prices, keep an open mind, and be less influenced by residual value predictions set three years ago,' said John Bailey, chief executive of the ICA (Holdings) network which includes ICA, CMA and NCA. Immediate support for this view came from Tom Madden, customer affairs director of British Car Auctions. 'Vendors at auction will lose money by holding out for better times,' he said. 'By chasing mythical values on cars they are selling, they are missing opportunities and more importantly wasting their company's money.' Tim Ryan, editor of CAP Black Book, said: 'The market is so volatile at the moment that fleet managers should go out to an auction and see what is happening. It is better to sell cars while the bids are there, than to hang on to them in the hope of an extra £100.'

* Industry 'stuck in slow lane' of electronic commerce: Fleets are falling behind the rest of the business community in taking up the benefits of paperless electronic commerce which is fast becoming the norm in other sectors. While the likes of Tesco and Marks & Spencer reap the rewards of technology, the fleet industry remains content to shuffle paper invoices and orders according to FleetNet - the organisation under which the fleet rental and leasing industry is developing common standards. John Jenkins, managing director of electronic commerce consultant JJ Associates told delegates at a FleetNet open day: 'In any other supply chain but fleet you've got far simpler dynamics, such as a big retailer like Tesco with massive purchasing clout, which takes on a system and suppliers follow. There is a great opportunity for everyone from fleet operators to bodyshops and fast-fit companies to save a lot of money and cut down on time wasted with paperwork for invoices.'

* Fleets face massive EC shake-up on VAT THE European Commission is proposing a massive shake-up of fleets' right to recover VAT on company cars, fuel, maintenance and repair expenditure. The proposals form part of an EC initiative to simplify and harmonise VAT recovery among member states. The Commission wants to introduce the changes by January 1, 1999, although tax experts say this deadline is unrealistic, while HM Customs & Excise claims the proposals are too complicated and expensive. The proposed regulations would allow:

- Outright purchase fleets to recover VAT on new car acquisitions so long as business use of a car is more than 90%, extending to them the current VAT advantages enjoyed by UK leasing companies, daily rental firms, driving schools and taxis.

- No VAT recovery on expenditure on company cars whose business use is less than 10%.

- Countries to choose one of two VAT recovery systems - the 'normal' and the 'simplified' - for company cars whose business use is between 10% and 90%. The proposed 'normal' rules would allow fleets to recover VAT on the price of a car and fuel, but then repay VAT on the proportion of private use. But for any lease or maintenance payments fleets would only be able to recover VAT according to the proportion of a car's business/non-business use. Currently HM Customs & Excise blocks 50% of the VAT recovery on lease rentals, but allows fleets to recover all the VAT on maintenance expenditure.