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  • bearfund: 
  • Comments (663)
  Am I the only one who sees that this isn't about GM or the threat of bankruptcy? I don't own a car. I don't want to own one, and it's unlikely that anyone could give me one for free (other than to immediately resell for a profit). We're talking about assets that depreciate very rapidly and offer only marginal utility relative to far less costly - and less capital-intensive - alternatives. Perhaps most importantly they are very expensive to operate even if one ignores the enormous government subsidies and neglects to price in the cost of carbon. Worse still, the price of oil is currently very low; even a normalization to the $50-80 range would further reduce the resale value of most automobiles, and a permanent rise beyond $100 - highly likely considering America's absurd monetary policy - would make even the best deals losing propositions.
  
  Think of owning a car like any other investment or trade candidate. You'll find that for nearly all plausible situations it fails as both. Small wonder GM is in trouble. They'd be in trouble even without their company-specific problems. There are simply too many manufacturers in this market, too many models, too many cars. If someone has to exit, it should be the least competitive vendor, and right now that's GM. End of story.

  2008 Dec 13 08:07 PM | Link | Reply
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  • xpatUSA: 
  • Comments (32)

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  • tcktek.blogspot.com
  To me, at age 68, living three miles down a dirt road and eight miles from the nearest store - the author's rejection of vehicle ownership seems a little trite.
  
  Some stuff that we have to buy, like cars, refrigerators, A/C's and such are not investments nor are they supposed to be.
  
  So we'll hang on to Wifey's Jeep CRD and keep running my gas-guzzler on E85, thereby doing our little bit ;-)

  2008 Dec 13 09:27 PM | Link | Reply
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  • {5U}: 
  • Comments (134)
  GM bonds were trading at 60 cents during the housing boom.
  
  The only thing that kept this company alive was the credit bubble. More specifically, the leveraged loan market.
  
  Filing for bankruptcy would save the company billions of dollars of cash interest. Without such high fixed costs, GM will burn cash like the sun.
  
  They should let the company restructure and maybe the government could transfer some of the labor to the Obamonmics $1 trillion LBO of America.

  2008 Dec 13 09:29 PM | Link | Reply
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  • {5U}: 
  • Comments (134)
  doh! I meant with such high fixed costs GM will burn cash like the sun...

  2008 Dec 13 09:30 PM | Link | Reply
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  • sickofthehype: 
  • Comments (374)
  bearfund: You have no clue.
  
  Try raising a family - kids, dogs, and hauling them around in your.... wait a minute..... city bus? subway? taxi?
  
  Get real.

  2008 Dec 13 10:56 PM | Link | Reply
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  • sickofthehype: 
  • Comments (374)
  And yes, a car is NOT an investment - it's a requirement for most people to get TO a job, so they can make a paycheck, so they can then, make an investment.
  
  That is, unless you bought a brand new Corvette in 1958 and still have it.

  2008 Dec 13 10:57 PM | Link | Reply
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  • bearfund: 
  • Comments (663)
  Emotion and money management don't mix. The knee-jerk "but I HAVE TO have a car!" reaction is an emotional one, and unfortunately one that many Americans have made - to the detriment of their own and the national wealth.
  
  First, let's accept that there is some utility value to owning a vehicle. If you're using it specifically for work purposes (as a taxi driver, trucker, or farmer) it is also an income-producing asset. That's not what we're talking about here; for most people the marginal utility of a vehicle is whatever it gives them that other transportation options of comparable cost would not. A concrete example might be a man who would ordinarily commute by himself but would use a car on weekends to carry four or five people more cheaply than the cost of four or five bus fares, and a couple of times a year might go to locations not served at all by transit, saving the cost of renting a car, hiring a taxi, or not making the trip. Those savings minus the extra costs of commuting by car instead of other means is marginal utility. To compute it, you must first know your cost of commuting by car and by some other method.
  
  Wherever you work, chances are good there is housing within walking distance (more than 50% of Americans now live in "urban areas", in which this is almost invariably true). In most climates, that means you can walk to work at least 70% of the time. Often it means you can walk 100% of the time and your commuting cost is zero. One can also extend this logic to other modes - bicycling, bus, streetcar, train, etc. In most cases, the subsidised cost of transit will be lower than the subsidised cost of owning and operating a car (and removing the subsidies would exaggerate the difference, not eliminate it). Computing this cost involves many variables but will usually boil down to straightforward addition for each of two or three main options.
  
  Next, you must determine the cost (to you or to everyone, as your economic philosophy dictates) of owning and operating a car. This is a basic financial exercise and we needn't go into detail.
  
  Finally, you must subtract these two figures, and compare the result with the marginal utility to you of owning and operating a vehicle. If the latter is higher, you probably should own some kind of vehicle. If not, you shouldn't. I assert that if everyone actually performed this activity, there would be many millions, probably many tens of millions, fewer car owners in the US alone. As a result, the allocation of resources would also be much more efficient (i.e., more market participants would be acting rationally) even before we consider the mutually reinforcing staggering malinvestment in suburbia borne of these irrational choices. If you want to dispute this assertion, you need to show either that I'm significantly understating the utility of a vehicle to a very large number of people or significantly overstating the costs of owning one. You have no realistic hope of making the latter argument and you've made no attempt at the former, only an emotional response. And while it's not directly relevant, I'll also note that at present anyone suggesting that carmaking capacity is not excessive (because, of course, everyone NEEDS a car!) is also arguing with the tape: sales are terrible.
  
  Want to try again, or should we just agree to let GM die and save ourselves a couple hundred bucks apiece in bailout costs?

  2008 Dec 13 11:43 PM | Link | Reply