Low-Interest Auto Loans, Thanks to the European Central Bank

FRANKFURT — As it moved boldly in recent months to avert a credit squeeze and a rash of bank failures, the European Central Bank might also have subsidized the market rollout of Volkswagen’s newest subcompact.

Volkswagen Financial Services, a unit of Europe’s largest carmaker, borrowed 2 billion euros ($2.6 billion) from the central bank at the end of February, one of numerous car company credit units to avail itself of the cheap, three-year loans.

Volkswagen said it would, in turn, lend the money to customers to buy cars, including the new fuel-efficient Up.

The industry infusion has been done without the fanfare — or testy debate — of Washington’s bailout of Detroit three years ago. In fact, helping Europe’s hard-pressed auto industry move cars off dealers’ lots was probably not what Mario Draghi, the European Central Bank’s president, had in mind when the bank issued a total of more than 1 trillion euros worth of cheap three-year loans in December and February.

Mr. Draghi was clearly more concerned about a severe banking crisis caused by dysfunctional money markets.

But one consequence of the loan program was to give automakers, through their in-house consumer finance units, a chance to raise low-interest money they could lend to customers to buy cars.

The European auto industry can use all the help it can get. Carmakers are suffering from a surplus in production capacity at a time when the market for midprice cars is slumping.

As long as their financial services units have banking licenses, automakers are eligible for European Central Bank money, just as any other bank.

The central bank is lending the money at an interest rate of 1 percent. Volkswagen said it planned to pass the benefits on to customers, and is enticing Up buyers with financing at a relatively low annual interest rate of 3.9 percent.

“It would be foolish not to do it,” Frank Witter, the chief executive of Volkswagen Financial Services, said in an interview last week on the sidelines of a news conference at a Frankfurt hotel, where an Up was on display.

Mercedes Bank, a unit of Daimler, said it also borrowed from the central bank, while PSA Financing, a unit of the maker of Peugeot and Citroën cars, hinted that it did so as well. Neither disclosed amounts. “I think everybody does it,” Mr. Witter said of his competitors.

The central bank’s money could be crucial for the European car industry, which appears to be headed for its second big downturn since the beginning of 2009. Registrations of new cars in Europe were down 8.3 percent in January and February compared with the same period in 2011. The slump is particularly ominous for brands sold primarily in Europe, like Peugeot or Opel from General Motors.

The European Central Bank’s loans cannot solve the problems those companies have with underused factories, but it at least ensures that customers who want cars can get financing to buy them.

But the automakers’ borrowing also illustrates the extent to which the central bank’s loan program was something of blind leap of faith by policy makers. The flood of money has clearly lowered tensions in the euro zone — but there was also a risk the cash might be put to use in ways that the bank did not intend and might not regard as positive.

So far, for example, the commercial banks that were the main intended recipients have not shown much enthusiasm for putting the money to use in ways many economists might have liked — by stepping up interbank lending, or lending to businesses or snapping up large numbers of the bonds issued by European Union member governments.

And in the case of the car companies, it is not clear whether Mr. Draghi and the central bank are happy that the auto credit banks joined the queue for cheap loans. Asked his views earlier this month, Mr. Draghi was noncommittal.

“I don’t really have any reaction to that,” he said at a news conference. “They are acting within the law.”

Licensed and regulated as banks, the car companies’ credit arms cannot escape the same headwinds facing other institutions, like investor hesitancy to buy corporate bonds issued by banks.

Mr. Witter of Volkswagen Financial Services said the money borrowed from the central bank “goes straight into financing our core business.”


Seeking U.S. Loans for Plant, Fisker Scrambles to Restore Credibility

DETROIT — Fisker Automotive’s huge assembly plant in Delaware stands vacant, waiting for the money, equipment and workers to make a new plug-in hybrid electric car backed by loans from the federal government.

But whether Fisker, a start-up based in California, ever builds vehicles in the United States is anyone’s guess.

After several setbacks — including defective battery packs in its first model and the Energy Department’s decision last year to suspend loans to the company — Fisker is desperately trying to re-establish its credibility as an independent automaker with cutting-edge technology.

The company has hired a new chief executive, the former Chrysler chief Tom LaSorda. This week, it disclosed in a Securities and Exchange Commission filing that it had finished raising an additional $392 million from private investors, giving it more than $1 billion in equity.

And on Tuesday night, Fisker’s top executives showed journalists in New York a prototype version of the car that it hopes to build in Delaware. The first showing of the car, the Fisker Atlantic, was aimed at convincing skeptics that the company has staying power, and at persuading the Energy Department to resume the loans critical to Fisker’s future.

The company’s co-founder and chairman, Henrik Fisker, showed the Atlantic, a sportier, smaller model than the Karma that will be priced in the $50,000 range. And although Mr. Fisker alluded to the Karma’s “difficult journey” in getting to market, he said the company was committed to building the Atlantic. “We want to make it very clear,” he said. ”This car will be built and will be going into production.”

Roger Ormisher, a Fisker spokesman, said the company is pursuing two lines of financing, one with the Energy Department and one with private investors.

Fisker borrowed $193 million of the $528 million allocated by the federal government before its loans were suspended last May. The company used the first portion of the money to finish development of its $108,000 Karma plug-in sedan, which is manufactured at a plant in Finland and has attracted people like Colin Powell and Justin Bieber as early owners.

But the Karma missed government deadlines to receive the rest of the money, putting Fisker’s second model in jeopardy.

Fisker needs hundreds of millions of dollars to equip and staff the Delaware plant, which was previously owned by General Motors.

While it tries to negotiate a resumption of the federal loan program, Mr. Ormisher said, Fisker is in a push for private financing as well. Industry analysts said the company’s troubles were not unexpected, given the enormous resources needed to introduce an all-new model that runs primarily on battery power.

The Karma has already faced one safety-related recall and the embarrassment of a complete breakdown of a model being tested by Consumer Reports magazine.

Last month, the manufacturer of the Karma’s lithium ion battery, A123 Systems, said it had discovered defects in battery packs made in its plant in suburban Detroit. A123 is now building replacement batteries for Karmas now on the road.

The shutdown of the Karma in the Consumer Reports test prompted the company to hire Mr. LaSorda.

His first action was to notify Fisker customers that a team of 50 engineers was tackling its battery problems. At the same time, he defended how the Karma’s computerized systems had shut down because of technical problems in the Consumer Reports test car.

“The Karma performed exactly as it was designed to,” Mr. LaSorda said in a letter sent to more than 600 Karma owners. “The onboard diagnostics detected a fault and entered a protection mode that shut the car down to protect other components.”

Fisker has since said it will upgrade its customer service program and offer free battery replacements and an extended warranty of up to 60,000 miles.

Joseph Phillippi, an executive with the consulting firm AutoTrends, said Fisker clearly had some significant hurdles to overcome.

“Can they make it? Nobody really knows,” he said.

The Karma’s rocky start led to the cutoff of the company’s federal funds last year and cast a pall over the entire automotive energy loan program. No loans under the program have been made by the Energy Department since then, and several companies have withdrawn their applications this year because of tightened guidelines for the program, which Congress created in 2007 to encourage the development of fuel-saving technologies.

The bankruptcy of the solar company Solyndra last summer also hampered the efforts of auto loan applicants, according to executives of firms that have dropped their applications.

The Fisker story underscores the difficulty a start-up has in competing with major automakers in the fledgling electric-car market.

For example, the Karma uses technology similar to that used by G.M.’s Chevrolet Volt, which is still struggling to gain acceptance in the mass market, Mr. Phillippi said. “When you look at the amount of money and resources G.M. put into the Volt since 2006, you have to wonder if a small company like Fisker is ready for prime time,” he said.

Fisker’s main private backer so far has been the Silicon Valley investment firm Kleiner Perkins Caufield & Byers.

Mr. Ormisher, the Fisker spokesman, said new investors he declined to identify had committed to join the latest round of financing. However, he added that Fisker did not yet have enough money to begin equipping and staffing the plant in Wilmington, Del., where it hopes to build the Atlantic.

“We were late to market with the Karma and it cost us,” he said. “But we are still hopeful we can reach a settlement with the D.O.E., because obviously it’s going to take a few hundred million dollars to start manufacturing in Delaware.”

Brian Selander, a spokesman for Gov. Jack Markell of Delaware said the stalled plans had been “a source of a great deal of frustration” in Wilmington.


More Homeowners Seek Reverse Mortgages at Earlier Age

Reverse mortgages have always been viewed as a last resort — something that older retirees could turn to when they desperately needed to supplement their dwindling incomes. But in the wake of the housing market’s collapse and high unemployment, a new study has found that people are using reverse mortgages to alleviate more urgent financial pressures, like paying off debt. And homeowners are applying for these loans at much younger ages than they have in the past.

Reverse mortgages allow people age 62 and older to tap what may be their biggest asset, the equity in their home, without having to make any payments. Instead, the bank pays the borrowers, though they continue to be responsible for paying property taxes and homeowner’s insurance. When borrowers are ready to sell (or when they die), the bank takes its share of the proceeds from the sale, and borrowers (or their heirs) receive whatever is left.

The study, conducted by the MetLife Mature Market Institute and the National Council on Aging, analyzed data collected from reverse mortgage applicants who went through mandatory counseling sessions with government-approved counselors. The study covers 21,240 sessions from September through November 2010.

“Consumer attitudes about reverse mortgages are changing because the recession has eroded confidence about retirement security, and Americans will rely more and more on these measures,” said Sandra Timmermann, director of the MetLife Mature Market Institute. “As reverse mortgages do not have income requirements and since other forms of credit have become less accessible, these loans will become more attractive.”

The research found that about 21 percent of homeowners who went through counseling were 62 to 64 years old — even though you can pull less money out the younger you are. That’s a sharp rise from the 6 percent of borrowers in that age group who applied for reverse mortgages in 1999. Those findings are also consistent with a recent industry analysis that found a dramatic shift toward younger borrowers in the past few years.

And while the average age of the borrower is 73 years old, as the chart above shows, the average age of homeowners who went through the counseling was 71.5 years old. That is consistent, the study said, with the housing department’s findings. “As we look more closely at the age distribution of recent counseling clients, it appears that this broad trend may conceal the start of a major generational shift in the use of reverse mortgage loans,” the study said.

Of homeowners who are considering a reverse mortgage, nearly 46 percent are under the age of 70, according to the study.

The vast majority of counseling clients in 2010, or 67 percent, were seeking the reverse mortgage to lower their household debt. Only 27 percent were considering it to improve their quality of life. Most recent counseling clients (67 percent) said they had a conventional mortgage that needed to be repaid if they decided to take out the mortgage, whereas 27 percent reported having both housing and nonhousing debt. Naturally, using their equity to repay the debt means they will have less left should they need to access it in the future.

For nearly one-third of counseling clients, the existing mortgage may exceed half the value of their home, the study said. That means they may not have enough equity to qualify for the mortgage, or they have to wait several years until they can qualify for a loan that’s large enough to satisfy their financial needs.

Most reverse mortgages originate through the Department of Housing’s Home Equity Conversion Mortgages program — known as HECM (pronounced HECK-um) — which has become more popular over the past 10 years. There have also been many changes to the program, including a new loan option known as the “HECM Saver,” which requires lower upfront fees. That version came out in October of 2010, so the study noted that its results may reflect the fact that more homeowners considered those loans, though it’s unlikely that it had a major effect.

The study’s authors also point out that more homeowners are likely to incorporate home equity into their retirement plans, instead of tapping it for emergencies only. “It is likely the reverse mortgage option will be considered alongside some of the more traditional methods of saving and investment,” said Barbara Stucki, vice president for home equity initiatives at the National Council on Aging.


Republicans See Politics in Chrysler Super Bowl Ad

The most talked-about advertisement of the Super Bowl did not have a barely clothed supermodel, a cute puppy or a smart-aleck baby. It was a cinematic two-minute commercial featuring Clint Eastwood, an icon of American brawn, likening Chrysler’s comeback to the country’s own economic revival. And within 12 hours of running, it became one of the loudest flashpoints yet in the early re-election campaign of President Obama, providing a reminder, as if one were needed, that in today’s polarized political climate even a tradition as routine as a football championship can be thrust into a partisan light.

Some conservative critics saw the ad as political payback and accused the automaker of handing the president a prime-time megaphone in front of one of the largest television audiences of the year.

Karl Rove, the Republican strategist who served as President George W. Bush’s top political adviser, said Chrysler was trying to settle a debt to the Obama administration for rescuing Detroit carmakers with billions of dollars in loans.

“The leadership of auto companies feel they need to do something to repay their political patronage,” Mr. Rove said on Fox News, where viewers of the network’s morning program “Fox & Friends” rated the ad their least favorite of the game. “It is a sign of what happens when you have Chicago-style politics, and the president of the United States and his political minions are, in essence, using our tax dollars to buy corporate advertising.”

David Axelrod, President Obama’s chief political strategist, seized on the commercial almost immediately. He sent out a Twitter message shortly after it ran, declaring, “Powerful spot.” And, as if to underscore the Obama campaign’s lack of involvement in it, “Did Clint shoot that, or just narrate it?”

The White House cast the ad, which was accompanied by similar full-page newspaper advertisements on Monday, as an affirmation of the president’s economic policies. Asked by a joking reporter whether the commercial counted as an “in-kind contribution” from Mr. Eastwood, Jay Carney, Mr. Obama’s press secretary, said it merely laid out the facts, and indeed the ad resembled a main theme of the president’s State of the Union address last month.

“This president,” Mr. Carney said, “made decisions that were not very popular at the time that were guided by two important principles: one, that he should do what he could to ensure that one million jobs would not be lost; and two, that the American automobile industry should be able to thrive globally, if the right conditions were created.”

The ad’s title, “It’s Halftime in America,” along with its uplifting and inspirational script, recalled one of the most famous campaign ads ever produced, President Ronald Reagan’s re-election year “Morning in America” ad of 1984 — albeit with a post-recession twist.

Mr. Eastwood, who narrates the new ad and appears among images of molten steel and city streets, says: “How do we come from behind? How do we come together? And how do we win?” He concludes, looking straight into the camera: “This country can’t be knocked out with one punch. We get right back up again, and when we do, the world’s going to hear the roar of our engines.”

In an e-mail, Mr. Eastwood said politics were not in the equation. “The ad doesn’t have a political message,” he said. “It is about American spirit, pride and job growth.” Mr. Eastwood, a former mayor of Carmel-by-the-Sea, Calif., who usually voted Republican, has acknowledged recently having a political change of heart.

Chrysler similarly denied that politics were at play. But that ignored the fact that as a major beneficiary of a government loan program derided by many conservatives, whatever it does over the course of the next nine months will be scrutinized in a political light. Based on rates NBC was quoting advertisers, the two-minute spot cost Chrysler about $12.8 million.

Shown before an audience of more than 110 million people, according to Nielsen, the advertisement came at a fortunate time for Mr. Obama’s re-election team. It dovetailed with a positive jobs report on Friday and the rolling start of a general election campaign that it assumes will be run against Mitt Romney. (Mr. Romney opposed the auto bailout, as did Mr. Eastwood in an interview with The Los Angeles Times in November.)

But the conservative outcry over the spot brought to the foreground the tricky politics of the auto industry rescue, which has cut both ways for the Obama administration. In the late summer, Ford showed a documentary-style commercial in which a customer asserted that he was not going to buy a “car that was bailed out by our government.” Ford was solvent enough that it did not need the loans given to Chrysler and General Motors.

Ford pulled the commercial, but said it did so only in the normal course of its advertising rotation.