LIANE HANSEN, host:
This is WEEKEND EDITION from NPR News. I'm Liane Hansen.
General Motors and Chrysler came to this year's North American International Auto Show with new models, fresh momentum, and a lot of buzz. More people are buying new cars, and the U.S. auto industry in general seems to be making a comeback.
But NPR's Sonari Glinton explains that many analysts question whether GM and Chrysler can be profitable in the long run if all they do is sell cars.
SONARI GLINTON: If you ever bought a car, you know the drill. First, you figure out what car you want, and then you look for a dealer - preferably, one you can trust.
(Soundbite of car commercial)
GLENN (Bangor Car Care): Hey, everyone, Glenn again from Bangor Car Care, and we're not horsing around. We have over 200 vehicles to choose from...
GLINTON: Not all car dealers are loud and crazy. Joe Sesi is a dealer. He rarely does commercials. He focuses on long-term relationships.
Mr. JOE SESI (Car Dealer): My family's had this business for 68 years, and I've been doing it for about 42.
GLINTON: And to build the relationships, he says you have to focus on all parts of the deal. Sesi sells Ford's Lincoln brand, among others. He says it's best when a car company can also make loans.
Mr. SESI: If we have the vehicles - the products that serve your need - and we take care of you, and we take care of your financing and you trust us, you have a real business then.
GLINTON: Here's the thing about the relationship: You may change your car every few years, and only see a dealer a few times, but your ties to the lender? They go on and on. Here's Joe Sesi.
Mr. SESI: I have customers that may have had 20 or 25 Ford credit accounts -oh, yeah. That's a lot of cars.
GLINTON: Ford Motor Credit is what industry insiders call a captive finance arm - meaning, its main job is to offer car loans.
Mr. SESI: When we finance through a captive, the chances of that consumer purchasing another vehicle from us are much greater than when we finance through a third party.
GLINTON: And that's what you want.
Mr. SESI: And that's what we want. That's why having a captive is very important to car companies.
GLINTON: Think of Ford or Toyota as car companies that are also big banks. They make money on all sides of the transaction - they make money lending to customers and dealers. When you're about to pay off your loan, they know it. And they start to send you incentives to buy a new car. That's not true for all the big car companies.
Mr. GEORGE MAGLIANO (Analyst, IHS Automotive): GM got rid of GMAC, and Chrysler spun off Chrysler Credit. They found that that - it really hurt their sales activity, and put them at a competitive disadvantage.
GLINTON: George Magliano is an analyst with IHS Automotive. He says when GM and Chrysler lost their finance arms in the economic crisis and bankruptcy, it changed how they do business.
Mr. MAGLIANO: It limits their ability to be aggressive, especially in lease activity and in going after the subprime or the entry-level consumer.
GLINTON: Magliano says a car company with an internal bank or captive finance arm has more information. That means it knows more about the risk it takes on customers with less-than-perfect credit.
Mr. MAGLIANO: Without the ability to control the captive finance companies, chances are these people would not get the car or truck loan.
GLINTON: Those entry-level customers represent a lot of the business. The analysts say that for General Motors or Chrysler to really make a comeback, they need to get back in the loan business. GM has repeatedly made attempts to buy back at least a part of GMAC - now, Allied Financial. So far, they've been turned down.
Joe Sesi says GM and Chrysler need to get back those captive finance arms.
Mr. SESI: What we find is our happiest customers are the ones that finance with the captive - because it's in their best interest to stay engaged, communicate if there's any issues, work them out. And so, they do help us make deals.
GLINTON: Joe Sesi says in the car business, it's still all about the relationship.
Sonari Glinton, NPR News, Detroit. Transcript provided by NPR, Copyright NPR.
