GM's Pending Bankruptcy: How Buying a Car Is Going to Change 33 comments
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It's business as usual: That's what General Motors (GM) and Chrysler want car buyers to believe as the two automakers work through the biggest financial crises in their history.
It's also wishful thinking. With Chrysler in bankruptcy and GM headed that way, firms that control nearly one-third of the U.S. car market are undergoing profound disruption. Ford (F), Toyota (TM), and several other automakers are losing money and revamping their own operations. On top of that, the Obama administration is speeding up the pace at which car companies need to introduce new technology, cut tailpipe emissions, and make major gains in the fuel efficiency of their fleets.
With the whole U.S. economy in flux, in fact, there's probably no industry being transformed as rapidly as the car business. Here are some of the changes that will hit consumers over the next several years:
Higher sticker prices. It's a buyers' market right now, since sales are terrible and automakers are still building more cars than shell-shocked shoppers worried about the recession can buy. There may even be some fire sales over the summer, as nearly 3,000 GM and Chrysler dealers slated for closing shut down and liquidate their inventories.
But the sweet deals will probably dry up by the end of the year. Most automakers are aggressively cutting production to halt chronic overbuilding, and as inventories get leaner, prices will rise. Fewer GM and Chrysler dealerships means there will be less competition driving down prices. And the new Obama mileage requirements will force automakers to adopt expensive new technology, like direct-injection powertrains and advanced transmissions, that will ratchet up the sticker price. For consumers who can afford it, the time to buy is now.
Cars in Aisle 6. Just about the only place to buy a car these days is a traditional dealership, thanks largely to powerful franchise laws in most states that keep other competitors at bay. But as automakers slash their retail networks, dealers are losing their clout. For new offerings like minicars—and perhaps cheap Chinese imports—a big showroom with a dedicated sales staff might not even make sense. That could open the way for retailers like Costco (COST) or Wal-Mart (WMT) to start selling cars. "A lot of new business models could emerge," says Craig Cather, CEO of forecasting firm CSM Worldwide. "We could see some crazy things in the next few years." In Mexico, for instance, at least one retail outlet sells Chinese-made cars alongside other types of consumer products. There's no reason such a model couldn't migrate north.
Toyota at the top. With the Detroit automakers trying to shrink their way back to profitability, it seems inevitable that Japanese carmaker Toyota will end up as the No. 1 seller of cars in the United States. GM has long been the market leader, with U.S. market share of about 19 percent today, compared with 17 percent for Toyota and 16 percent for Ford. CSM's projections show Toyota edging to the front of the pack by 2011, with Ford right behind and GM a close third. Those three automakers are likely to cluster at the top of an intensely competitive market for the foreseeable future.
GM on the rebound. GM's sales are sure to dip for a year or two, as the sprawling automaker winds down four of its eight divisions, right-sizes its dealer network and struggles to retain skeptical customers. But GM could once again become a powerhouse—and Chapter 11 could help. "GM's going to light it back up before long," says Gary Dilts of J.D. Power & Associates. "They have a pretty good product plan, and once they're out of bankruptcy they'll leave 10 years of debt on the side of the road." One suggestion Dilts has: Company executives should stop referring to "GM," which consumers associate with problems, and rely more on its Chevrolet and Cadillac brand names, which still have strong traction in buyers' minds.
Saturns from overseas. GM's plan calls for unloading this money-losing division—but Saturn's not dead yet. This earnest brand for straight-talking folks has a number of assets that make it likely to draw a buyer: An expansive network of nearly 400 dealerships, modern facilities, and a well-known and accepted brand name. Penske Automotive Group is one potential buyer, with a plan to stick the Saturn name on vehicles imported from Korea. Chinese-made vehicles might even end up as Saturns. For the time being, GM will continue to provide vehicles for Saturn stores. But at some point, Saturns will morph into something altogether different.
An endangered Chrysler. Company executives wax buoyant about Chrysler's prospects once it emerges from bankruptcy and finalizes a merger with Italian automaker Fiat. It won't be nearly that simple. Even if it sheds debt and streamlines, Chrysler will still be a damaged brand that lacks competitive products until Fiat-built vehicles hit the company's lineup, which could take two or three years. Fiat doesn't even plan to invest money in Chrysler, and the government has capped its commitment at a very modest $6 billion. CSM forecasts that Chrysler's market share will fall from 11 percent today to less than 3 percent in 2012. For a mainstream brand that can't get away with premium pricing, that's close to the minimum threshold for survival. Which means the turmoil in Detroit is far from over.
Disclosure: None
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I will never buy another car from Chrysler or GM. I will not support this fiasco in any way. Ever.
second, with fewer dealers, there will be fewer car salesmen. that means we will have to recycle the old car salesmen jokes, because we will not be getting any new ones. these old jokes will be worth more, because there will be fewer new ones competing to take their places. talk about your funny business.
Good article, good comments overall, and timely.
Dr. Dieter Zetsche is a smart and tough guy who was credited with turning around a then ailing, dwindling in quality Mercedes Benz into today's renewed, and re-invigorated company. Sure the guy has some visions.
Of late, he grabbed 10% stake in Tesla. He even cut himself loose from Chrysler with over a $B write-off.
In contrast, our government seems to go the other way. Does Obama have any credentials in economics and finance, other than a law degree and some inner city services?
Sad, very, sad, getting to be tragic, and even more tragic.
On May 29 10:25 AM Car Buyer wrote:
> What about Chrysler's 789 dealers and the GM dealers that will have
> to switch to selling used cars or another car brand? Nothing like
> pissed off, angry, highly motivated competitor dealerships (cut dealers)
> for the surviving Chrysler/GM dealers to have to compete with for
> car sales. And then for GM to be bringing in China built cars to
> replace American built cars? Looks like Ford and the foriegn brands
> will be doing well in the future.
and unless the car market gets over 10 million this year (about as likely as we send a space ship to the moon this month to land astronauts), Ford will have their hand out (thats what they told Congress last year)
On May 29 12:13 PM rrbatch wrote:
> When will Ford make its case that continuing government assistance
> to two of its competitors is not only unconstitutional, but a violation
> of anti-trust laws? Ford bit the bullet to hock its facilities to
> gain working capital, and is stuck with the cost of paying down this
> debt. GM and Chrysler not only shed $billions in debt, but have oodles
> of low-cost capital courtesy of us taxpayers.
>
> I relish the court case Ford could bring! For once, some lawyers
> may earn their keep.
but you can avoid them for any reason at all. and you probably already have been
On May 29 09:16 PM jstratt wrote:
> GM can take my tax money through the government but I will never
> buy one of their cars again. Lets see if I understand this correctly
>
>
> 1) Workers arent cutting pay at all
> 2) Savings will come though reduced pension contributions so that
> those obligations can later revert to taxpayers again
> 3) An honest bankruptcy process would have given a haircut to all
> including workers and bondholders.
>
> You can buy a GM car and also pay taxes to support them indefinitely.
> Their greed offends me so I will opt out!
And they should. The dealership network and way of purchasing cars in the US was outdated by 1980. The channels of distribution, inventory and other overhead, and lack of an efficient supply chain have all contributed greatly to the downfall. For the auto industry to not notice this and make changes, decades ago, only proves how poorly mismanaged the entire industry is.
the car companies bankruptcies (as seen so far any way) are based on one thing only.
he who supplies the money makes the rules. and since the government is the supplier of last resort (or in these two cases the only source. nobody else was going to come forward with $40 billion . and since there is no contract to supply the cash, they can cut it off on whim
On May 29 11:50 AM 2houndz wrote:
> Here's how car buying has changed for me. I will never buy another
> GM product (never bought Chrysler anyway). It's bad enough that
> the current administration has picked the pockets of America to funnel
> money to his UAW voting block, but a more far-reaching problem is
> that bondholder rights have been trashed. Why would anyone want
> to invest in a troubled industry when the US Government is involved?
> The rules change mid-stream on a whim, and it is then justified with
> populist, class warfare rhetoric.
>
> Those bondholders based their risk/reward decisions based on where
> they stood (or thought they stood) in the pecking order. If this
> isn't violation of Rule of Law it is very close.
On May 29 09:36 PM notsosmart wrote:
> just buy a ford.
our car market is smaller than theirs now (they are on pace to 12 million, we might make 9.5, maybe). and the last time their cars showed up, they were panned badly. think Japanese cars from the 50s.
now Indian cars make more sense. their market is not so developed. but they don't have much of a favorable view from Americans (think off shoring!)
On May 30 06:19 AM Carlos Lam wrote:
> Rick, while your points touch on this tangentially, I think that
> you miss one of the biggest factors: entry of Chinese-made vehicles
> into the US auto market. Geely and BYD make good cars, and they
> will be able to compete favorably on price with American automakers.
> If they can produce vehicles under the Saturn brand, then they can
> also take advantage of the goodwill that brand has built up.
>
> As an aside, it will be interesting to see when India's Tata Motors
> enters the US market and what its entry will do to pricing.
On May 30 12:44 PM Hot Richard wrote:
> Going out to buy 10 cars on credit to jump start the economy. I'll
> default on the loans, but I understand that is OK. I love finance
> in 2009 America!
>
> I expect protectionist behavior from Congress from here on out (until
> the collapse). Of course the US$ will be so worthless, so US labor
> might just replace Chindia cheap labor. Progress!
haven't heard any thing about lien holders being ripped off. since that would require those who hold loans to the company, bond holders are NOT LIEN HOLDERS. they have no collateral pledged . they should have bought a CDS/CDO to cover a default. since that isn't all that unusual.
On May 30 02:29 PM Mr. Ed, Jr. wrote:
> This has gone way too far with these 2 car companies. Billions and
> billions of dollars thrown down the rathole, and a thug administration
> ripping off lienholders and taxpayers to benefit their union friends.
> Shutting down Chrysler dealerships with no chance of the business
> owners to salvage anything-- that is disgraceful and unnecessary.
> (Neither Chrysler nor Obama's thugs will admit responsibility for
> the decisions on the dealership closings... I wonder why )
>
> I will never buy another car from Chrysler or GM. I will not support
> this fiasco in any way. Ever.
On May 30 02:38 PM bankownedbyamerica wrote:
> Total credit market debt as a percentage of GDP has risen from 130%
> of GDP in 1952 to 350% of GDP today. The various bailout and stimulus
> schemes enacted in the last year will drive this percentage above
> 400% in the near future. When a country allows this much debt to
> accumulate versus its GDP, they have done something seriously wrong.
> The country’s politicians, business leaders, and citizens have all
> contributed to this disaster.
>
> I came across this interesting site..check it out url.moosaico.com/10424
> Econ & Finance Articles Updated Daily
and they only barely kept the lights if that
On May 30 04:01 PM Teutonic Knight wrote:
> Rick -
>
> Good article, good comments overall, and timely.
>
> Dr. Dieter Zetsche is a smart and tough guy who was credited with
> turning around a then ailing, dwindling in quality Mercedes Benz
> into today's renewed, and re-invigorated company. Sure the guy
> has some visions.
>
> Of late, he grabbed 10% stake in Tesla. He even cut himself loose
> from Chrysler with over a $B write-off.
>
> In contrast, our government seems to go the other way. Does Obama
> have any credentials in economics and finance, other than a law degree
> and some inner city services?
>
> Sad, very, sad, getting to be tragic, and even more tragic.
Car Buyer,
Most of those 789 Chrysler dealers are following our local Dodge dealer into empty storefront oblivion. They will not be competing with anyone.
And you know, your image of "pissed off, angry, highly motivated competitor dealerships" is just so much Terminator fantasy. The car salespeople I've met are largely inert "something will turn up" Wallace Beery clones. So even the ones which have a foreign co-dealership by which to survive won't be breathing fire. They'll be waiting for shoppers in the showroom, just like they are today.
On May 29 10:25 AM Car Buyer wrote:
> What about Chrysler's 789 dealers and the GM dealers that will have
> to switch to selling used cars or another car brand? Nothing like
> pissed off, angry, highly motivated competitor dealerships (cut dealers)
> for the surviving Chrysler/GM dealers to have to compete with for
> car sales. And then for GM to be bringing in China built cars to
> replace American built cars? Looks like Ford and the foriegn brands
> will be doing well in the future.
I believe there could have been a typo: "... our sec. of state..." would be "...our sec. of the treasury...". Thank you for your comment. I think it is well said though.
Teutonic
On May 31 05:36 PM Arnh wrote:
> Look what's happening. We got record deficits, sky high unemployment,
> jobs going away, corroption on the highest levels of
>
> government, a tax thief as our sec. of state, and a perpetuation
> of Greenspan's and bush's fiscal policies. just inflate your
> way to prosperity huh? **** the middle class. Who needs them, as
> long as the elite can further solidify thier power with
> every uptick in the DJIA. and the dumbfounded, ignormant populus
> aren't helping matters.
> DISGRACE THESE CROOKS! ANYTHING TO MAKE THE MARKET GO UP, HUH?<br/>need
> financial news? i found this cool site is.gd/HGYt
>
> this market is confounding to say the least