Indego automotive concept, automotive consulting, steve young

I have commented before about the implications of the credit crunch on vehicle manufacturers as they have been forced to take writedowns of hundreds of millions of dollars on the loans and leases they used to prop up their sales volumes.  In this last week, we have seen the obvious solution to this (if you are as addicted to this particular fix as the world's automakers seem to be) which is to hive off those toxic loans to your friendly government so that you can start all over again!

In the Financial Times last week, the German and French finance ministries were quoted as saying that "the financing arms of carmakers could use the state guarantees for new lending of up to €400 billion and €320 billion respectively".  Note that this is "new" lending, and that we have not heard from other interested parties such as the Italians, Swedes and British (or should that be Indians now?).  This week, the same message came out from the US, with the Financial Times reporting that the White House "could use government money to buy up troubled loans, helping the flow of credit in the industry".

Meanwhile in some markets, the position is arguably worse.  This week, Go-Auto reported that GMAC (jointly owned by General Motors and Cerberus Capital) and GE Money announced that they were withdrawing completely from the vehicle finance business in Australia.  Together they have about 50% of the consumer finance market and over 50% of the dealer stocking plans - the finance provided to car dealers to support their inventory of new and used cars on their lots.  If the market and dealer network are not going to collapse completely, local banks will have to fill the very substantial gap, which will probably lead them to ask for - yes, you guessed it - help from their Government.

It is clear to me that I am not smoking the same stuff that the automakers, their finance arms and our governments all seem to be.  Using subvented credit to make cars more affordable to people who otherwise are going to be buying smaller or used vehicles is always going to cause problems eventually.  The industry gears up to producing larger volumes of bigger, more luxurious, (and more profitable, at least in the short term) vehicles.  Consumers get used to having access to these vehicles at unbelievably low prices.  And then the bubble bursts, we go through a period of adjustment, and incredibly we start all over again!

The IndeGo concept includes a sustainable leasing model, as the company retains title to the vehicle for it's entire life cycle.  Any deals done at the beginning of the life cycle have to be recovered in a later part of the life cycle.  There is no escaping the consequences of making bad business decisions in order to get short term sales.  A few months ago, I thought that IndeGo had to go on the back burner as the credit markets tightened up.  Now, I'm not so sure.  If you can go along to your respective Government, admit to being an addict, and promptly be issued with fresh supplies of your favourite narcotic, it's perhaps time for IndeGo to get in the queue too....