The U.S. carmakers are under particular stress right now. Art Spinella heads up CNW Research and focuses on the auto industry. He says he's seeing something he's never seen before. He says some lenders seem to be more willing to lend to people who are buying Hondas, Toyotas, or other foreign cars.
[Spinella] "Someone might want to buy a GM or a Chevrolet product and the bank might say, nah, I'm not sure, even with your good credit score, we're not really sure that that's feasible because we're not really certain -- and they don't necessarily say this out loud -- but they're not really certain that Chevrolet isn't somewhere along the line going to be damaged dramatically by a GM bankruptcy filing" [Chris Arnold, "Markets Weigh U.S. Plan to Expand Bailout," NPR: All Things Considered, 2008.11.13].
Think about that: banks deciding for consumers that an entire brand of products, American-made products, is too risky of an investment. GM is on the ropes, Ford is looking a little pale, too. What happens if wary bankers decide the entire American auto industry is too much of a gamble?
I wonder: while some locals appear to be fretting over possible hesitance by Madison lenders to support Madison's TIF district, what happens if the banks decide they want to hold off on funding purchases from Prostrollo's All-American Auto Mall?
I don't know, Pat... maybe stocking a few Hondas out by the White Buffalo wouldn't be such a bad investment... just in case.
I'm not surprised in the least. "American" car companies have been producing inferior vehicles for years. Through their poor design and complete mismanagement they are now in serious economic trouble. If I was a lender I would be pretty selective now too. A significant amount of the cost of a new car is the warranty. If one of the major car companies kicked the bucket and dropped warranty support for their current model year vehicles those assets would all drop in value by $5-8k.
ReplyDeleteWhoever provided the loan at that point would be stuck holding the reduced value asset of anyone that couldn't make payments which is becoming quite common place. This is a natural and reasonable reaction to the current economic climate.
I looked at the residual value of a new SUV after three years if I were to lease it, and while it used to be 55% or so, the residual after three years was only 21% according to the leasing company. In round numbers, a $40,000 vehicle normally would be worth around $22,000 after three years, but now that same vehicle is projected to be worth only $8000 after three years. Also, either KIA or Hyundai was offering to sell new cars with nothing down, no deposit regardless of your credit score. Everyone is qualified. That may change as reposessions come rolling back to the bank or dealers. One thing is for sure, if you're looking for a used vehicle, values are down so far that it is a great time to buy.
ReplyDeleteI've spent a chunk of change at Prostrollo All American Auto Mall. The salesmen have always taken the time to show us vehicles. Jerry and his son Pat have invested a small fortune making their business a leader in the Madison Community.
ReplyDeleteThe guys in the shop have always taken care of us and done the job right the first time. Our car has over 220,000 on it and most of the service work was taken care of at Prostrollos.
Pete in the Body Shop is top notch. All of the people are friendly. We like doing business with them.
Unfortunately the big 3 car companies face very difficult times from high gas prices and now a credit crunch. Three million American jobs depend on the auto industry. The gov't was quick to throw money at the banks yet they won't take the time to help GM now.
Oh, well. When my old wreck meets her end, I'll just go out and pay cash for another old wreck. Nothing different here. Same as I've always done it. The bank can stick it in their ear.
ReplyDeleteI've always bought American. When Old No. 8 gets sick, there are three good garages right nearby, and they've always got the parts.
I'd hate to see the American car companies die. But I'm not too fond of bailing them out either. Hey, if my publisher goes down, my income will stop. Can I get a bailout then too?
I remember when Chrysler was hurting back in the late 1970's and Lee Iacocca borrowed $1.5 Billion over four years, paid it back and also brought Chrysler back as a premier car builder, developing the K-car and Dodge Caravan, partnering with Mitsubishi, Mercedes, AMC-Jeep and Maserati. He rebuilt a dying company and became the spokesman for changing the way we built American cars.
ReplyDeleteWe're missing that leadership in today's business world and the auto industry. Nobody wants to stand up and say "we screwed up" and be willing to bring a plan forward to change the direction. Iacocca had a plan to fix his company and paid back the loan within four years. He didn't ask for a bail out, he asked for a hand up.
Today's bailout requests are being handed out with no expectations of change or responsibility. It appears to be just a cash infusion to help cash flow with no defined plan for future success. Once again, we are being asked to reward poor business decisions, just like the mortgage crisis, banks and Wall Street's greed.
Anon 9:54: And I'll bet there are similar helpful local car dealers all around the country who are suffering because of the corporate mismanagement Tony mentions. The big corporations screw up, the execs keep their benefits, and the little guys (and even Pat's a little guy in the big picture) get hammered.
ReplyDeleteStan, if anyone deserves a bailout, you do! :-) So do all the independent working men and women. We'll see if January 20 does anything to change the focus from Wall Street to Main Street.
It's a little amusing to me that Stan was writing about his old car and the American auto industry at 3:22 in the morning. The next guy was typing at 4:56. It doesn't seem right.
ReplyDeleteAs for my nocturnal rantings, you know the old saw: Evil never sleeps.
ReplyDelete;->