Detroit Uses Aid to "Open-Up" Auto Lending: Not Necessarily Good for GM 20 comments
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A recent Bloomberg article discussed how GM and Chrysler have been using government aid to "open-up lending" and mitigate the slide in automotive sales:
(From Bloomberg): "April 6 (Bloomberg) -- U.S. sales are “starting to open up” as $7.5 billion in aid to the lending arms of General Motors Corp. and Chrysler LLC eases a loan logjam for buyers that helped drag the industry to its worst slump since 1981.
The automakers’ sales declined less than analysts expected in March after GM affiliate GMAC LLC received $6 billion from the U.S. Treasury in December, allowing it to loosen lending standards, and Chrysler Financial Corp. got $1.5 billion in January to foster borrowing for retail transactions.
Tight credit had combined with low consumer confidence to slash new-vehicle purchases. While it’s too soon to expect a robust recovery, dealers and others say, the federal support is helping stabilize the industry.
“It’s starting to open up,” said Alan Helfman, vice president of River Oaks Chrysler Jeep in Houston, who estimates he lost a quarter of his November and December sales to rejected loan requests. “We’re starting to be able to sell more cars. It’s not like it used to be yet, but it’s getting better.”
U.S. auto sales tumbled 37 percent in March as record incentive spending and the availability of credit to higher-risk buyers helped mitigate the effect of the highest unemployment since 1983 and consumer confidence near a 42-year low…
...Late in March, GMAC began lending again to buyers with credit scores of less than 621, after stopping in October.
Helfman, the Houston dealer, said about 25 percent of buyers had loans rejected last month, a decline from roughly 40 percent in the fourth quarter of 2008. The usual rate is about 10 percent to 15 percent, he said.
‘Perfect Paperwork’
“You still have to have perfect paperwork: All the facts had better match up,” he said. “At least they’re lending.”
Auto sales last month ran at an annualized rate of 9.86 million, an improvement from the 9.1 million rate in February that was the worst since December 1981. The March total also beat the 8.8 million estimate of 8 analysts surveyed by Bloomberg. U.S. sales were 13.2 million in 2008 after averaging about 16 million this decade."
A couple of things about this:
Halting the Slide: turning in abysmal results that are slightly better than the analysts expectations does not a positive trend make, anecdotal evidence aside it's far too early to call this a positive trend just yet. Especially when it's quite likely that the economy will continue to worsen through the end of the year, especially with respect to unemployment.
Lending: I have to admit that I cringed when I read the passage about GMAC ending its prior moratorium on lending to consumers with FICO scores below 621, call me crazy increasing your loan originations to those with bad credit (especially in a weakening economy) sounds like a recipe for future disaster. This is especially true when you factor in GM's new "payment protection plan", which will cover the loans of people who lose their jobs for a period of nine months. Just think about it: lending to people with FICO scores below 621 (let alone 650 or 675) + a worsening employment situation = GM taking it on the chin with this one.
If you're going to cover people's payments if they lose their jobs you need to start lending to higher quality customers, not lower.
Overall while this is undoubtedly good news for the dealers, I'm not sure that it's truly good news for GM in turns of contributing to the company's turnaround. Just think about it: GM was losing money per car sold during the credit boom when sales volumes were much higher, and the company wasn't offering the same level of incentives. How do you think GM's profit potential per car looks now, in the era of greater sales incentives, low interest rate financing, payment protection and the new program that protects your car's resale value? The company isn't exactly giving cars away right now, but it's getting closer and closer by the minute.
While the company's various cost cutting initiatives will mitigate the financial impact of the above, the fact remains that no company ever turned things around by selling their products/services for a loss. Detroit needs to understand that it's better to sell fewer cars for a profit, than a greater number of cars for a loss. "Making it up with volume" isn't going to work in an environment where volume is rapidly decreasing.
You can read more here.
Sources:
Bloomberg.com: "U.S. Sales 'Open Up' on Aid to GM, Chrysler Loan Arms" -- Jeff Green, April 06, 2009.
Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.
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I see no need for cultivating so much doom and gloom on Alpha. Then again, it apparently just appeals to fearful negative small thinkers.
This is not a problem? I know us small thinkers don't have much capacity to use common sense or reasoning to its fullest extent, if you would grace us with you intellectual gifts we would for ever be in your debt!
Until you are willing to enlighten us with your brilliant logic, I will stick with the facts.
GMAC and the BO admin, have done this country no favors by advancing credit to people who have no business buying a new car! This article is right on the money from a factual standpoint!
I have contact with over 40 dealerships in a large metro area and my data is accurate. It's part of my job, not random phone calls.
GM was selling cars for a loss during the credit boom, and at present they're dealing with a double edged sword of lower sales volumes and lower revenue per car due to the various incentives they're offering. The company isn't going to recover by selling cars at an even greater loss, especially in the face of lower volumes.
It's not about GM vs. Ford or GM vs. the Germans.
It's about the very simple mathematical fact that you can't get ahead by selling a car for an even greater loss per car, than you were when sales volumes were significantly higher.
-M
Many car makers including Ford, Chrysler, an originally Toyota and Honda in early years sold cars at a "loss". So shouldn't that be mentioned? How much shall. we include or exclude? It does seem negative to keep hammering on GM when they are making efforts. This article just foments this kind of commenting so I guess I am not surprised.
""General Motors (GM) has 6,500 dealers in the US and Toyota Motors has 2,000, but Toyota sells more cars than GM""
If you check last months sales, and even sales for the quarter, GM STILL sold more vehicles than Toyota or Honda. In fact, even Ford just sold only 1700 less than Toytota. Sorry Mad Hog Hunter. Facts:
www.autoobserver.com/2...
As for the larger point, how does it make sense as the article points out???? Why not answer the question genius (that's sarcasm)?
On Apr 08 12:05 PM User 387439 wrote:
> Check this guys comment stream and ratings folks. The writer of this
> article likes "only a certain German made auto" and the "snake man"
> here " cobra" wants his ford to grab all of GMs market. Full of
> hot air.
>
> I have contact with over 40 dealerships in a large metro area and
> my data is accurate. It's part of my job, not random phone calls.
This is a free market economy, let it run its course. I know goof balls are going to attack this post as well, fact is, it is what it is. GM cannot run without US tax dollars. Argue that, or stop being an air thief!
You're a disgrace even to the unions you represent!
On Apr 08 12:05 PM User 387439 wrote:
> Check this guys comment stream and ratings folks. The writer of this
> article likes "only a certain German made auto" and the "snake man"
> here " cobra" wants his ford to grab all of GMs market. Full of
> hot air.
>
> I have contact with over 40 dealerships in a large metro area and
> my data is accurate. It's part of my job, not random phone calls.
"As for the larger point, how does it make sense as the article points out???? Why not answer the question genius (that's sarcasm)? "
In my opinion the author leaves much out. He paints a picture of GM selling vehicles at a "loss" for "many years". Most auto makers sell certain of their vehicles at a so called "loss" Toyota didn't make any money on it's many year old Prius until recently. It's Yaris was a loss and the Echo isn't a money maker either. It is the nature of the business. Almost all busiesses have products that are break even or a loss, along with the profit makers. In GM, Ford, and Chyslers case, SUVs and pickups really brought home the money along with Chevy Impala, Ford Taurus for awhile, and Chrylsers Jeep brand. As an example, the largest of GMs SUV plant produced from 1994 to early 2008 over 5,000 Tahoes, Suburbans, and Yukon each week at an average clear profit of $10k each ( $50 million a week). It's second largest plant in Arlington Texas produced enough to make another $36 million each week. Another plant in Silao Mexico produced about $28 million a week. And that's not counting the very profitable $25,000 to $45,000 pickups from several other plants across the nation. This is clear profit each week year after year for over the last 14 years. That's after the so called often quoted $73/hr ( misleading) wages and including salaried , engineering, and skilled trade overhead at each plant. GM didn't operate all those years at a loss. Yes, as with all auto makers, there were losses on lower selling models. To say GM operated selling at a loss for years is a misleading statement. So the articles dwells on only one aspect of the present promoting it's own circular reasoning.
In case no one noticed, GM was making money for many years and wasn't in trouble until the finance gurus cut off the revolving credit that funds it's month to month operations. The same as Chrysler. Then, of course, money started leaking out the bottom of the pail faster than it was going in.
From what I read in your past posts Cobra, your Cadillac is some years old, ( unless that was a story too), and you confess to being a die hard Ford guy. So, your motives are suspect, besides your ill temper and unstable attitude.
Most of these articles are written over and over by the same authors and they usually have their own agenda. That isn't being very objective in my opinion.
I am a Ford guy, but moreover I am a car guy, I like cars from most every company (outside of Asian and Korean) that produces family sedans to high performance. I watch the markets closely for trends and enjoy that as a hobby. I have been hard on GM as I watched Ford make drastic changes 5 years ago and admit they were going to lose market share, but become profitable on cars as well as trucks. At the same time, GM released its great news that it was going to get a large market share from Ford's decision to exit the rental car markets.
This is why I am so hard on GM. The signs were all there for 5 to 6 years!
Yet it is the tax payers problem!!!!!
On Apr 08 04:06 PM User 387439 wrote:
> . .. sigh... I rest my case. I am new here in the last few weeks,
> and now almost sorry I came. LOL
Gm did make some unwise product choices and could have made some better management choices in the past ( Roger Smith era). That said, in the last 15 years GM, and Ford made heavy inroads into reducing wages and benefits, substantial competitive productivity ( as per Ron Harbor and others ) , and had industry standard cash flow.
Let's not forget, it was run away fuel prices first that slowed all auto makers down, and then the Financial meltdown by irresponsible Financial gurus that stopped them short. With the internal and internal logistics that a large company such as GM has, the materials, inventory, dealer network, etc required month to month revolving credit on a huge scale. When that was halted because of bad investment banking, CDS , etc, the money flow , of course, stopped. Then the $22 billion or more that GM had in reserve quickly got used up to meet monthly needs along with no money coming in from new car buyers ( also the finance gurus fault).
Instead of restating over and over again why GM should be allowed to fail, think about this:
There is a lot of " ingrained thinking" about GM going on in the country. What the real pity is that so many are ready to bash GM, or Chrysler, or Ford when in Europe , Japan, and other countries, they support their auto makers and their companies in general. Regardless of your politics, financial status, career or occupation it wouldn't hurt to get past petty jealousy, class prejudice and more by having a more altruistic attitude. Lately, I wonder about whether this whole country deserves to survive. GM didn't pull a Berny Madoff. AIG employees and bondholders didn;t have to take a hit like they want from GM. What's with that?
I for one, am getting more than a little concerned about the "kick 'em when their down" heartless attitude of so many Americans.
My opinions are based solely on what I have witnessed as an intelligent and informed individual, who has worked for and in this industry. I have witnessed actual events in many B3 facilities, for GM to just turn a blind eye to everything that has been going on for 30 years in their plants (and yes I did read your comment regarding their advancements in contracts and reduced costs) and moreover the last 10 years, is cause enough alone for them to go bankrupt! This is not and has not been as you state just a crisis from the financial fallout, GM was losing money on North American operations for the past 5 years. So has Ford and CHRYSLER for that matter, that's not the point. The point I am trying to make is, no company is too big to fail! If you look at each decade for the past 70 years, there are dozens of companies (so called bell weathers) that were #1 in the world and had high flying stock and bonds. In each of those decades, companies went bankrupt and are no more. These companies lost their competitive advantage, lost track of what drove revenue and profits, or, witnessed their market crash.
No company is safe in today's world! Every public company anymore answer to the stock market and not to their given charters! That has got to change!
Back to GM: GM has been doing the same for the markets sake, not for what it is making for a product, but for revs and profits. They lost track long ago why they were in business for and got complacent. Additionally (and I am not hammering the union) they had the unions to deal with, the union was fighting for every dime of GM's profits to be disbursed to the workers. The union lost its charter, which, was to protect worker safety and working conditions. Instead they got greedy and starting fighting GM (and Ford and CHRYS) to get a bigger share of the revenue pie.
You cant put the genie back in the bottle! Sometimes the bottle has to be broke to fix it and rework into a usable item.
This is what needs to be done and should be allowed to happen. This is not personal, this is not anti-union, this is what it is. It needs to be allowed to run its course.
I believe you mentioned you have an MBA in some field, did you not study macroeconomics during your academic life? I am an engineer, I had 3 semesters of accounting which had macro and micro fundamentals, I am not an economist, I cant tell you how to live and cant know your situation, I am simply looking at it from someone who has seen how the operation is run. From that perspective, you cant unwind this watch! FWIW
I find it interesting and suspect that your demeanor changes from one post to the next. I disagree with what you say and think because it seems to change from one minute to the next , except with your hatred of GM. Maybe they didn't give you a contract at some point or hired someone else. On well., it happens. I don't know where you got the MBA stuff.. ( another user? ) I have dealt with people and been in many GM plants and a few Chrysler plants. They were well run especially for the size of operation. They didn't bilk the public or the US tax payer as AIG, Citi Corp, Countrywide and the rest are doing. I'll restate what I finished with before:
"
There is a lot of " ingrained thinking" about GM going on in the country. What the real pity is that so many are ready to bash GM, or Chrysler, or Ford when in Europe , Japan, and other countries, they support their auto makers and their companies in general. Regardless of your politics, financial status, career or occupation it wouldn't hurt to get past petty jealousy, class prejudice and more by having a more altruistic attitude. Lately, I wonder about whether this whole country deserves to survive. GM didn't pull a Berny Madoff. AIG employees and bondholders didn;t have to take a hit like they want from GM. What's with that?
I for one, am getting more than a little concerned about the "kick 'em when their down" heartless attitude of so many Americans."
To your point below: I cannot speak to the issues of AIG other then this point. The government acted in great haste and without regard for common sense or where the people making these decisions were at the time the decisions were made. That may sound like a cop out, but, I do not have enough information to argue a point in either direction.... The second part of your comment dealing with the 20 to 30 times the dollars given; As I mentioned, the AIG bailout cannot be compared to GM as if AIG went into BK, the entire financial system including most every national and international banks would have collapsed. Can the same be said for GM?
"One of my main points is: How can you not be upset or bothered by all the money AIG and the other rip off bank artists got? They have got and are getting away with robbery. You made the statement several times about "GM is getting taxpayers money". Your position and opinion seems very inconsistent and arbitrary to have such a hard stand on GM when they are getting a rather small loan compared to totally free and clear money 20 or 30 times more than GM or Chrysler has gotten with no questions asked."
For the next comment, the fact is, look at GM's (Ford and Chrysler also) quarterly reports for the past five years. There North American operations (total automobile sales in NA) lost money in each and every quarter stretching back to 2002. Where they did make money was on international and by a factor of 5 on GMAC. You cant make this stuff up, this is where I have a bone to pick with GM and CHY. For the record, I don't think CHY should get dime one, their owned by a hedge fund, if their (Cerberus) money is worth more than tax payers money then let them lose it all, I have no pity for them. This is where I pick up the torch for Ford, they were seeing the change happening and began to change with the markets rather than stroking their own egos.
"And I disagree with you about GM losing money for the last 5 years. AIG and the banks produced nothing all of those years but bogus paper, and wreaked havock on many peoples well being as well as businesses. If you read the small sample of the millions of $$$ that the few GM plants I mentioned made each week you might have a better appreciation for the reasons why GM got into dire straights. You say you run a business. I am sure it is no where near the scale that GM or Chrysler has."
No, my business is small (might say non-existent in comparison) but, the B3 have been clients for years. I have never been burned or beaten down by any of the B3. Hell, I have taken by far worse beatings by the likes of Wal-Mart, then the B3.
The key is, when you are watching a (drug addict) patient that is mildly sick and watch as they continue to shoot up drugs, its hard to have pity, when you see the same patient fighting off their addiction with every ounce of their being, you want to dig in and help this patient. This is the same analogy I refer to with Ford over GM. Ford saw the addiction coming and fought it off with good business decisions. GM went so far as to mock Ford when they were making these hard decisions and had a press release to that effect. I find it hard to feel pity for them.... Its nothing personal, its business, in business you have to make hard decisions based on facts and not emotions. The facts are not in GM's favor.....
Sorry if I have offended you in any way, I was not trying to offend, more trying to get rid of the mindless.