General Motors Death Watch 199: Credit Where Credit's Due

As our airplane began its final approach into Atlanta’s Hartsfield airport, we flew over the muddy outlines of an enormous new housing development. Phase I was attached. There wasn’t a single construction worker, car or human to be seen. Later, driving through the city’s outskirts, we passed dozens of these brand new ghost ‘burbs. It looked as if someone had detonated a neutron bomb, or unleashed a killer virus. Of course, someone had. Easy credit. And anyone who thinks the new car market is headed for a recovery simply isn’t paying attention.

During our Jeep Cherokee-enabled whistle stop tour of 17 dealers on the way north, we found most GM stores as lonely and hungry as an abandoned wolf cub. The majority of the showrooms were the automotive equivalent of those “starting in the 100’s!” housing tracts– only not as new. No surprise there…

Back when GM was offering zero percent financing to anyone with a pulse (i.e. buyers with low FICO credit scores), we flagged the fact that there would be a reckoning. Clearly, GM’s enthusiasm for putting people into cars they couldn’t afford was bound to boomerang. And so it has. A fetid flotilla of whipped whips is back on GM’s books. This number grows larger with each passing day, with each economic shock. The repo men have never been so busy.

This super-abundance doesn’t include the existing “glut:” the millions of would-be GM customers who are so far backwards on their existing car loan that they won’t be buying another new car for a long, long time. (If ever.) What’s more, the hidden engine of GM’s sales– endless sheaves of bad paper– is kaput. “We’re not writing any GMAC loans,” a dealer told me. “None.” God knows what impact that’s having on GM’s captive finance unit, but it can’t be good. Meanwhile, dealers are turning to local banks for their loans.

And “financially challenged” customers are returning to scary-ass corner lots. We stopped at four of these Hell holes, and they’re doing land-office business. (They eyed our 127k-mile Laredo with obvious rapaciousness.) The lots cater to people who need wheels, any wheels, now. These dealers, who specialize in high interest loans, report that cash ‘n carry is king. It’s a ridiculously small sample upon which to base a conclusion, but the trend, should it exist, doesn’t bode well for GM, whose low-end products are not-so-cheap and certainly not cheerful.

More anecdotal evidence: plenty of GM’s [supposedly] new car dealerships have used cars– many of them non-GM)–lining the street at the front of store. (This is doubly true for Chrysler.) The principal of one of the Chevy dealers told me he now considers himself a used car dealer; new cars are a loss leader. Literally. “Have a look back chair,” he said, waving at a lot full of new pickups. “I’m not ordering any new vee-hicles. Nun.”

GM’s numbers don’t jive with the reality we discovered on the ground. The automaker reports that all of its mainstream models fall below a 100-days’ supply. The most recent sales per franchise numbers are in. While they suck, they’re up: Saturn (47), Chevy (46), GMC (19), HUMMER (13), Cadillac (11), Pontiac (nine) and Saab and Buick (six each). And somewhere in the middle of his campaign for bailout bucks (a.k.a. low-interest federal loans for retooling), GM CEO Rick Wagoner said September’s sales stats will be in-line with this summer’s suffering.

Fleet sales? Fire sale fallout (i.e. lots of sales, little profit)? Closing dealers dumping inventory? Channel stuffing? TTAC’s Frank Williams is on the case. Meanwhile, our southern sojourn left us with an overall impression that the worst is yet to come.

Why wouldn’t it? Like their customers, GM and their captive finance unit GMAC have literally mortgaged their future. Both companies may delude themselves with talk of a market recovery, gently pushing it further and further into the distance as events unfold, but the truth is they’ve only begun to experience the fallout of their own short-sightedness. As credit tightens, as the economy reels, as gas prices continue to push the market into more frugal machines (where the competition has a huge advantage), GM faces a bleak future.

There is but one silver lining to this: GM’s bloated dealer network is contracting. The automaker doesn’t discuss such unseemly events, but we’ve seen the husks. There will be more failures to follow. But here’s the really scary thing: GM is not prepared for, nor welcomes the change.

Bill Heard (a.k.a. “Mr. Volume” or “that bastard”) closed its Arizona Chevrolet franchise yesterday. “It’s in a good area, and the store has a lot of traffic,” GM spinmeister Susan Garontakos said. “GM intends to keep it open.” Volume over profit? Time for a trip out West.