Felix Salmon
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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.
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This article has 28 comments:
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hoffman23
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21 Comments
Nov 03 11:28 PM-
anarchist
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141 Comments
Nov 03 11:41 PM-
Mac77
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15 Comments
Nov 03 11:57 PMLooks 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.
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derryl
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134 Comments
Nov 04 12:37 AM-
lowtechie1
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4 Comments
Nov 04 01:29 AM-
The hand
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763 Comments
My Website
Nov 04 03:24 AMi 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.
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gooddog2
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3 Comments
Nov 04 04:05 AM-
Liquidity Trap
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3 Comments
Nov 04 04:50 AM-
Roy M.
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355 Comments
Nov 04 05:38 AMVery well said. Right to the button.
In Japan, workers loyalty is number ONE.
Here, who knows !!
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Dr. O
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25 Comments
My Website
Nov 04 05:44 AMYou 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.
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lee99
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13 Comments
Nov 04 07:01 AMMore critical to overall well being of country to provide some backing and prevent BK. Worked really well for chrysler in the 80's.
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working at frod
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54 Comments
Nov 04 09:02 AM-
working at frod
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54 Comments
Nov 04 09:26 AMOn 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!!!!
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mutley
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2 Comments
Nov 04 09:39 AM-
cab02149
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9 Comments
Nov 04 09:52 AM-
Smarty_Pants
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1105 Comments
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Nov 04 11:02 AMThe 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.
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Douglas Korthof
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11 Comments
My Website
Nov 04 11:02 AMGM 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.
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wondergirl
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5 Comments
Nov 04 11:40 AMThen, 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.
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Helmutzerber
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1 Comment
Nov 04 11:52 AMLook 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.
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sumosama
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237 Comments
Nov 04 12:00 PM-
Smarty_Pants
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1105 Comments
My Website
Nov 04 12:15 PMThe fact that our gub'mint takes and spends my income on things I would not otherwise spend it on does not make it economically viable nor something I would chose to do with my money. I have no choice as the gub'mint has made it plain that they will throw me in jail if I 'choose' not to cooperate. Extortion isn't an identifying hallmark of a free market.
If not for unthinkable levels of debt the gub'mint would not be able to pay for all the support programs you identified. They are nothing more than gub'mint vote pandering with stolen money and hardly a good reason for continuing to support a money losing business.
Saying the gub'mint is going to take my money and spend it anyway is not a valid reason for propping up a failing business.
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Smarty_Pants
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1105 Comments
My Website
Nov 04 12:30 PMWhy my brother? Familial ties with the producer might get me to buy if the prices were close, but it won't mean squat to someone from the next block over.
If a neighborhood baker made bread to sell for $5/loaf when I could buy out of town bread for $2/loaf I'd buy from out of town. If I want to donate to the community I can take the $3 of savings and give them $2 and keep $1 myself.
Maybe that's better for the community in total. Maybe the local baker only donates $0.75 of his time out of that extra $3 he charges me.
Fact is that it's MY money. I can spend it any way I like regardless of what you may or may not think. Same goes for your money. I don't expect you to spend it based on what I think. Do what you want with it.
That doesn't change the fact that an non-profitable business model can't last in a market economy. Why should the owner or employees expect to be 'given' a decent living if they can't earn it by producing something people are willing to buy at a price they are willing to pay?
How many buggy whips did you buy last year? None? Why aren't you supporting buggy whip manufacturers? Don't they deserve to make a decent living too?
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RCA
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53 Comments
My Website
Nov 04 01:34 PMThe weak and lazy want cradle-to-grave support from the strong who are not afraid to compete and not afraid to get paid what they are worth. It sounds great, doesn't it, if you are on the receiving end of the largesse? But it penalizes the people who are willing to roll up their sleeves, take risks, employ people and produce value.
On the other hand, if we are going to ask the average Joe to give up his unions and government handouts, we must also ask big business to give up its obscene executive salaries, its opaque transactions, and its expectation of government guaranteed profitability and protection from bankruptcy.
Those who are in power at most of the large corporations are really no better than the factory worker wanting a guaranteed high-paying job for life. In fact, many are worse, because they have more power to game the system to their greedy advantage.
The corporate executives ask the government for protection from foreign competition. They lobby the government for industry sanctions and perks. They expect the government to bail them out of their incompetence and poor business decisions. And, by fiat, they command obscene salaries and golden parachutes whether they produce value for the stockholders or not!
Americans, en masse it seems, have the same faults and foibles at either end of the economic spectrum. We have become a nation of greedy whiners who want "the system" to guarantee success, regardless of effort or merit.
Smarty_Pants, you are right that the market doesn't have to be fair and the market doesn't have to offer any guarantees. This holds whether you are a factory worker in a union or an executive looking for corporate welfare.
The solution? To me libertarianism looks more and more attractive. I just can't get past the anarchy which is almost guaranteed to result if you follow libertarianism to its logical conclusion.
We need a drastic shakeup and we need to get rid of the scoundrels whatever their position in life or in business. However, anarchy just seems to danged drastic -- like throwing the baby out with the bath water. But short of everyone just magically doing an about-face and doing what they morally ought to do, no other solution is apparent to me.
On Nov 04 11:02 AM Smarty_Pants wrote:
> With all due respect to those working in the auto industry I'd like
> to present the market's case.
>
> 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.
>
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Smarty_Pants
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1105 Comments
My Website
Nov 04 01:55 PMGood point. Same complaint does apply to overpaid executives. My only comment there is that the owners of a business should be free to overpay any of their employees if that's how they want to do business. If they overdo it they won't be able to compete and will change or fail.
What should be forbidden is 'using' gub'mint force to provide your business an unfair competitive edge in the market, ie. tarriffs, licensing requirements, FDA approval, etc. Free competition for all and let the market decide and we'll all be much better off in the long run.
Give libertarianism/anarchy a chance. Maybe it'd be better than what we've got, maybe not. Can't know till you try. Couldn't be much worse than what we've got now.
Read: www.lewrockwell.com/
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Smarty_Pants
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1105 Comments
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Nov 04 02:15 PMI'm weak and lazy, but moonbat throws lots of peanuts so I get by. ;-)
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wondergirl
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5 Comments
Nov 04 02:40 PMAre you aware that the Japanese gov't subsidises their auto industry? They have never had to worry about making a profit. In addition, their profits go back to Japan.
When the American auto companies are gone, do you think that the Japanese will raise their prices? Gee whiz. Just maybe.
My father worked as an electrician for an auto company and had to sell the car and take a bus for 2 years to pay the hospital bill when I was born (1946.) So, when the UAW began (1946) it was a good thing.
The trouble with the UAW is that it got too greedy. But are they the only ones?
Maybe greed is a problem for all the unions... for nurses, postal workers, teachers, lawyers, actors, professors, publishers, pilots, etc. If I follow your line of thought, we ought to put them all out of work and replace them with Chinese and Japanese teachers, lawyers, nurses, pilots, actors, camera men, etc.
Or is it only the bad, evil UAW that is the cause of all of our problems in the USA?
Sounds like everyone got too greedy, or we wouldn't be in the meltdown we are in now.
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Smarty_Pants
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1105 Comments
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Nov 04 03:33 PMCould be. There's a reason why the only growing union lately has been the gub'mint employee union. The other unions are putting themselves out of business by demanding so much that their employers can't compete and stay afloat. Private sector union membership is down to 13% in the US, far below levels in the 50s and 60s.
Tell me, which is better for a qualified airline pilot. Unemployment check because his union sank the airline or a job paying less than what the union demands yet much more than unemployment?
I'm not just casting a blanket aspersion on unions as 'bad'. But there is a limit to how high you can get wages increased before the business suffers. Trying to force higher wages than the market will bear by threat of violence or gub'mint restrictions on hiring replacement workers will only harm the business to the point where it can't afford to keep the doors open.
As for Japanese subsidies, GREAT! I'm all for them if it lowers the cost of my car purchase. Let the Japanese government spend its money so I don't have to. Those subsidies are going to be there whether we waste our money propping up a failing business or not.
Or are you suggesting we apply tarriffs to 'even the playing field'? The only result you get for that is that ALL car prices are higher and ALL car consumers are punished to the level of incompetence of the worst run businesses. How does that help the consumer? It doesn't, it punishes the consumer to support overpaying the employees. Hardly a win-win scenario.
Your argument about GM and F going under then Japanese raising prices is incomplete as well. If that should happen then Brazilian or German or Norweigan or English or Chinese companies would undercut the Japanese pricing and take away market share. The minute a business tries to take advantage of its customers they leave an opening for any competitor to exploit and provide a better product or service.
The only true way to build a free market monopoly is to ALWAYS offer the best product at the lowest price. The first time you think you have all the market share and raise prices someone will figure out how to make the product and sell it for less to take away some of your customers and profit.
Wal-Mart has become the 800 pound gorilla of retail, displacing many mom and pop type stores. Have they started jacking up prices? No. They always have and always will give their customers
"Low prices. Always" :-)
They know that someone will take their business away from them if they ever begin to start squeezing the customer for any more than their minimum profit margin. They have built a world wide powerhouse business on that model, unrivalled by none.
As a result, thousands of their employees have become very wealthy through stock purchase plans, and not just executives, but truck drivers, cashiers, greeters, anyone who put in the work. Wal-Mart customers shop there because they know they can get more of the basics for their money than anywhere else and that Wal-Mart will stand behind what it sells no matter what. Wal-Mart has saved the consumer mega-millions of dollars over the years.
Oh, and in case you weren't aware, Wal-Mart isn't unionized.
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Smarty_Pants
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1105 Comments
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Nov 04 04:07 PMIn defense of the Joe Sixpacks out there, most of them have never been on the other side of the fence trying to figure out how to make a business turn a profit.
They don't see the 15 hour days, seven days a week for no pay that a small business owner puts in to keep things afloat. Their world is limited to 40 hours a week at $12/hr with as little effort as possible because they think there's nothing to be gained from giving more.
They're not dumb, they're not evil, they just don't have any experience regarding what goes into getting things to run.
I've been there. More than 2 years at 15 hours/day, 7 days/wk, quite often at no pay. That's what it took to get our business on a solid footing. I had more days than I can remember where my only meal of the day was 4 slices of buttered bread, sometimes to save money, sometimes because I was too tired to bother making anything else. I did it because that's what it took to succeed after I decided to risk most of my life's savings in the effort.
Now I pay people to help run things. My profits are lower, but I have more time for returning to my own career. That hard work and sacrifice in the early stages has resulted in a business that provides an income for several people where one didn't exist before and a nice profit stream to me for taking the initial risk and for keeping an eye on things now.
If you want to complain about people who are getting unfair treatment look no further than the guy who started his own business. He's suffered more than the rest of his employees combined, but it's not likely you'll hear him whining about it or saying how unfair it was. He just did what was necessary to get ahead, like any of his employees are free to try any time they want.