Carmakers want to be bankers, too. Big Three move into mortage lending and commercial leasing

As imaginative as he often was, Henry Ford could, on occasion, stand stiff as a mule in the face of change. Indeed, when it came to selling cars, Ford demanded ``cash on the barrelhead,'' despite pleas from his son Edsel that there was a huge untapped market among buyers who needed credit. In 1923, Ford relented - somewhat - by creating the Weekly Purchasing Payment Plan. There was one catch: Before a customer could take home the new Model-T, it had to be paid off in full.

It took another half decade before the No. 2 automaker introduced a modern ``buy now, pay later'' installment plan, the forerunner of the Ford Motor Credit Company. Today, automotive lending is one of the Ford Motor Company's primary sources of income.

Last year, 13 percent of Ford's record $4.6 billion earnings came from automotive loans and other financial services, and Ford chairman Donald Petersen wants to increase that share to 30 percent by the 1990s.

Ford's interest in financial services is shared by the General Motors Corporation and the Chrysler Corporation, which have both begun making forays into such areas as mortgage lending and commercial leasing. Some observers believe the Big Three could become key players in the financial industry of the future.

The wider move into financial services makes sense, auto executives say, when two key factors are considered:

``Financial services can be looked at as countercyclical,'' says William Lovejoy, vice-president for marketing at General Motors Acceptance Corporation (GMAC). After losing billions during the last recession, the Big Three need to diversify, he says.

Ford, Chrysler, and General Motors all have long track records in the financial services industry, primarily through lending money to car and truck buyers.

Ford appears to be the player to watch right now. Ford Motor Credit, the company's auto loan arm, is still a big financial services moneymaker, but its dominance could begin to slip in the next few years. As recently as 1986, it was lending the money needed to buy 42 percent of the cars and light trucks sold by its dealers. Today that has slipped to 29 percent, largely because the Big Three have abandoned the discounted loans once used as a sales come-on.

Ford's most aggressive new venture began with the August 1985 acquisition of the San Francisco-based First Nationwide Bank. With $20.87 billion in assets, First Nationwide is the seventh-largest savings-and-loan in the United States. Last year it accounted for just $62.5 million of Ford's financial services revenue, but Anthony Frank says the ultimate goal is to ``build a financial giant earning $300 million to $600 million.''

Mr. Frank, who recently left the helm of the thrift to become US postmaster general, and his successors see a literal meaning to First Nationwide, and they've been gobbling up troubled savings-and-loans around the country to gain the right to do business, at last count, in 15 states. The S&L has also established a network of independent but affiliated banks, dubbed the First Nationwide Network, giving it a presence in a total of 39 states.

To keep expansion costs down, the thrift has resorted to a novel approach, adding branches inside Kmart department stores and Jewel supermarkets. There are now 169 such branches, and several hundred more may follow.

Ford's most recent foray takes it into commercial leasing with last year's acquisition of U.S. Leasing for $512 million. The company is a major player in rail-car and fleet and aircraft leasing.

Is another acquisition on the horizon? Although Kenneth Whipple, president of Ford Financial, says ``our plans are not based on concluding a major acquisition,'' he adds that a financial-services buy is a high priority for the company, which has about $11 billion in the bank for just such a purpose.

General Motors and Chrysler have made several major acquisitions of their own in recent years, but both say they are now more intent on digesting previous buys than on new takeovers.

Like U.S. Leasing, Chrysler Financial Corporation has become another major operator in the commercial leasing field with its Chrysler Capital subsidiary, which handles everything from railroad cars to the Hotel Continental on Chicago's ``Miracle Mile.''

Another subsidiary, Chrysler First, has two main lines of business, including a commercial financing operation serving about 28,000 dealers, wholesalers, and distributors of nonautomotive goods, including lawn and garden supplies, musical instruments, and boats. The subsidiary also provides consumer loans, such as the new PersonaLine products, a $5,000 unsecured line of credit offered owners of Chrysler vehicles.

Together, Chrysler Capital and Chrysler First have a total of $10 billion in assets on the books, compared with $16 billion for Chrysler Credit, the carmaker's captive auto finance subsidiary.

Chrysler Financial vice-chairman Robert Baker says that with the acquisition of American Motors last year, Chrysler Credit has an expanded market for car loans. Still, he says, ``I can see those other two companies growing to $10 billion each over the next five years ... or about 20 percent annually ... [while] Chrysler Credit will continue to grow, but at a slower pace.''

As with Ford and Chrysler, the prime business for GMAC remains the financing of new cars and trucks. But over the last few years, the subsidiary has grown in other areas of financial services.

With its 1985 purchases of the mortgage-servicing divisions of the Norwest Corporation and the Core State Financial Corporation - renamed GMAC Mortgage - it services a total of $24.5 billion in outstanding loans, making it the nation's second-largest mortgage lender.

GMAC is looking for ways to cross-market its financial products. With one new program, qualified GMAC Mortgage borrowers receive a $500 discount on loan fees if they also buy a GM car.

Mr. Lovejoy, GMAC's vice-president, says the carmaker has a huge market for such services, if only among its own ranks: ``Before we go [to the general public], we're working with our employee base. GM has over 800,000 employees worldwide, and ... I look at it like a company town, where the town sort of feeds on itself.''

Ancillary services marketed to employees include car, mortgage, and home equity loans, and payroll deductions for loans. General Motors employees may soon be able to buy GMAC certificates of deposits as well.

GM is now seeking regulatory approval to open GMAC Capital, its first so-called ``nonbank'' bank, which would be based in Utah. Under federal rules, an industrial bank must limit itself to either taking deposits or making loans. GM has chosen the former.

The moves by the Big Three into such services as banking and mortgages is not always welcomed by older members of the financial establishment.

``From the banking standpoint, we're worried this could become tremendously unfair,'' says Joe Belew, president of the Consumer Bankers Association. Banks, he avers, are ``severely restricted'' by law in terms of the fields they can enter.

Jack Shipman, a CBA board member and an executive vice-president with Liberty National Bank, in Louisville, Ky., disagrees. He is not opposed to the kind of deregulation Ford is seeking, ``as long as there's parity.''

The growth of the Big Three financial units has also raised some eyebrows on Capitol Hill, where there is concern that the auto industry could eventually develop too much power. Company officials routinely dismiss such objections, contending that, despite their size, they control only a small percentage of the overall financial services industry.

``Largeness,'' insists Lovejoy, ``is not necessarily dangerous.''

Clearly, officials with each of the Big Three say, they will always be looking for further financial services niches into which they can grow.

Mr. Whipple of Ford says that he would someday like to add a full-service bank to his shopping list. And with the resources available to Ford, he notes, it would be easy to buy up any of the top 10 banks in the country with one gulp.