Driven to Bankruptcy 28 comments
an article to
-
Font Size:
-
Print
- TweetThis
Do you know anybody who bought a new car in October? Most of the country was a little bit preoccupied, I think, for that kind of activity. But even so, the news that GM sold just 168,719 cars last month -- down from 307,408 in October 2007, and possibly the first time it sold fewer than 200,000 cars in a month since the 1940s -- is sobering.
Part of the problem, of course, is that GM isn't very good at making the kind of cars that people want to buy. But there's also the fact that if you want a car loan from GMAC, you now need a credit rating of at least 700. Plus, of course, GM no longer owns GMAC, which can't help.
New cars, like houses, are leveraged assets: you buy them on credit. As demand for all leveraged assets falls, it stands to reason that new-car sales, as well as financed used-car sales, are going to fall commensurately.
Now this doesn't need to be the end of Detroit. But it does imply that the equity in the big three carmakers is going to zero. As Justin Fox notes, bankruptcy is pretty much exactly what all of them need right now.
As the carmakers come out of bankruptcy, it'll be interesting to see the degree to which they continue to cling to a business model which involves selling the cars at a loss and trying to make up the profits on the financing. It seems to me that the most successful brands have for decades been the ones with the least reliance on their retail leasing arms. And in any case I don't see much of an appetite for car-lease receivables over the next few years.
What this says to me is that Americans will be buying cheaper cars, just because they won't be able to get financing for the more expensive ones. And since cheaper generally means smaller and more fuel-efficient, that's got to be a good thing for the country.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication in the last week
Seeking Alpha 100 » -
Fastest Climbers
Those with the largestSee all
increase in followers
in the last week
Fastest Climbers » -
Top Commenters
Top commenters,
as ranked by their peers-
1
User 353732
-
2
Moon Kil Woong
-
3
doubleguns
-
4
optionsgirl
-
5
Mayascribe
Top Commenters » -
1
-
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
Looks like we will all be driving Honda's and Toyota's.
Come to think of it ...most of the GM dealers in my home town already carry foreign makes like Toyota and Mazda. Maybe they seen this coming.
i have heard the executive management and board of GM state that the unions are now in line. neither management, the board or the unions are in the right line. All three must go.
Very well said. Right to the button.
In Japan, workers loyalty is number ONE.
Here, who knows !!
You can see the effect of market fragmentation on the ratings of the once dominant big 3 TV networks, or even the circulation of the daily newspapers.
Increased competition = smaller market share = declining business.
More critical to overall well being of country to provide some backing and prevent BK. Worked really well for chrysler in the 80's.
On Nov 03 11:28 PM hoffman23 wrote:
> You are just clueless!! If any auto company declares bankruptcy,
> it will be the end of their business. No one is going to buy a car
> from a bankrupt company. They would be concerned with warranty issues.
> And doesn't the consumer want a company to stand behind their warranty?
> How about money for engineering and design? We cannot let GM or Ford
> go down. The repercussions will be felt in every town and city as
> all the suppliers to the comany, as well as the dealers, will lay
> off tens of thousands of people. WAKE UP!!!!
The market doesn't care about how much you earn. You don't have a "right" to a good paying job. If you want high pay you must produce enough to financially support that level of pay.
If the Japanese, Indians, or Chinese can make an equivalent car for half the price (after shipping it half way around the world) then the market will buy a foreign car and use the difference in prices to put food on the table or pay the rent.
Is that 'fair'? The market doesn't care about 'fair'. That's a moral concept which depends on whose point of view you are taking.
Is it 'fair' to the Chinese guy who works just as hard for less money if his products are prevented from selling because the US gub'mint adds a 100% tarriff? Not to him. He's glad to have the job paying half what you make and producing as much or more for the money. He is outcompeting you.
Is it 'fair' to the consumer who winds up paying 50% more for a car because of the tarriffs necessary for you to maintain your standard of living? Not to him. He'd rather buy the foreign car and save the money to spend on something else. He has limited resources too and wants to get as much as he can for his income. Why do you expect him to pay more for a car than he has to? To support your income? Is that 'fair'?
The fact is it's a free market. If a Japanese car company can make an equivalent product for less, then people will buy it and US car makers will go under. Period. That's how the market works. Always has, always will.
The money spent on US car manufacturing will instead be spent on something more productive that consumers are willing to pay for. Maybe that means lower wages for former auto workers, or maybe they will figure out how to be more productive and earn more. It's up to them to make the most of their position and opportunities without the gub'mint saving their bacon at everyone else's expense.
Life is always and everywhere a competition in the market. There are no promises. Those who are most productive get ahead. Those who try to 'bully' their way to better incomes like the UAW has been doing for the past 30 years will find that the market eventualy undercuts them and they will find themselves looking for another line of work.
Don't complain about the market's verdict. It's composed of people just like you looking to get the most out of what they've got. Find a way to be more productive and you will succeed by selling them the best product at the best price.
As it stands now, the Big 3 probably all deserve to go bankrupt. They have grossly misjudged the market, gone deeply into debt, and lost market share. GM and F are both technically bankrupt already. They each have over $40/share in debt as it stands now and the only way to become productive is to borrow even more.
When does it stop? How much money will they waste trying to support UAW members who are paid far more than foreign auto workers earn when they are no more productive than the foreigners?
Are we becoming the bailout nation? Does everyone now have an unspoken 'right' to a gub'mint subsidy to prevent failure regardless of cost?
That's not how the US got to the top of the heap. It won't keep us there either. Not for long.
GM drove us away, even though dozens of would-be buyers stood in the rain for 28 days, offering to buy the last few EV1 for CASH.
So now we are happy Toyota RAV4-EV customers and gave our money gratefully to Toyota.
Thousands were driven away by GM arrogance; they say it's the past, don't look at it, now they are different, but that's just a BALD FACED LIE. Volunteer engineers restored a gutted EV1 to running condition, but GM would not allow it to be driven, threatening reputedly to confiscate and CRUSH it.
GM's lies about the VOLT are legendary; if they intended to build a serial hybrid, heck, they demonstrated one, the PRECEPT, in 1998!! They could do it any time; there was a serial hybrid Oldsmobile in 1969. So GM is still lying, as usual, still disrespecting buyers. You don't get far JAILING CASH CUSTOMERS.
GM IS FINDING THAT OUT.
Then, there are the suppliers. The gov't will have to pay all the pensions (taxpayers), and all their medical/medicare insurance (taxpayers) and all their foreclosures (taxpayers.)
Then, there are the dealers. The gov't will have to pay all their pensions (taxpayers) and all their medical/medicare (taxpayers) and all their foreclosures (taxpayers.)
Then there are all the "un-intended" consequences. Less need for doctors, dentists, eye doctors, teachers, grocery stores, restaurants, insurance (car, life, etc), clothing, vacations, banks, cable TV, gasoline, cars, planes, trains, computers, newspapers, etc. Cities will have less money from less taxes/property taxes, etc. So, the teachers, firemen, policemen, city workers, officials will be let go. (Maybe, if THEIR UNIONS don't mind, they may have to take a pay cut?...)
Do you have the picture yet? Does your job fall into that catagory?
Now, let's imagine we have another war. A war with China. Russia. Korea. Do you think Japan will side with the USA? Not.
So, let's see. Who do you think will build our jets? tanks? ships? jeeps? I guess if we ask China very nicely, and if they are bombing us too badly, they just might build us a few hum-vees. Right.
Wake up, America. We need industry allot more than we need a service industry.
What do you think pulled us out of WWII? It wasn't a hamburger flipper or a bank teller or a wall street junkie.
It was industry.
Look at what the big three do for this country. Do you see local events, building restorations, charity contibutions, etc.... by the foreign makers ? No. They take their money back home. The big three support many facets in this country and give back. Even in these far troubled times, Chrysler has donated to the Hurricane victims and other efforts. So have the others. Toyota has their own government getting involved in their monetary system to make trade favorable for them. Other countries to not practice fair trade to let the big three in (fairly and open, like the USA) .
Do you buy poison to sprinkle on your food ? Why would you buy poison that kills the backbone of our country ?
If you had a brother that was a baker and made bread and donated his efforts to the community and schools, etc... Would you go and buy bread from his competitor ? Would you put him out of business ?
If the foreign makers support your local economy, and your family survives by it, then you need to buy it. Otherwise no one should forget what these companies have done for the United States.