I see a better business in independent off-warantee vehicle repair for customers who are delaying the purchase of new cars. The opportunity is hiring away the best service technicians from dealers for failing brands. Top talent will be on sale.

philipwitak: “this economic downturn could easily last ten or fifteen years … I’ve even heard this meltdown described as the first step in the financial fall of a great empire.”

Gee, so you think the US is in worse shape than Germany and Japan in 1945?

One of the Rothschilds supposedly said they were rich because they bought “when blood is in the streets.”

The excess industrial capacity of the USA in the twenties was driven by an export-driven economy supplying products to Europe, specifically the Brits and French. Much like China does with the USA today, we fed the Brits and France many a loan for them to spend money on their wars and social progressivism (the Great Game & WWI are expensive!) – and ironically, purchase all the junk our excess industrial capacity churned out for them. When Europe was forced to admit it was actually broke (the Brits punched out of the gold standard in ‘29) the house of cards that fed money to that industrial engine collapsed. Government tinkering ensured the rest. FDR’s schemes staunched bleeding by printing money, and when that initial inflation was spent, the economy sputtered around until WWII.

As far as no depressions or panics since, that has to do I think with the new financial world post-WWII. America essentially had a monopoly on credible money with Bretton Woods “dollar = gold, all you yokels now take dollars” system. Free to abuse, we printed away and shipped the paper overseas and got goodies in return. When the French called our bluff and wanted the gold instead of the paper, within five years of that development we only offered paper (kinda like the Brits in ‘29…wars on poverty and Vietnam are expensive!) when Nixon closed the gold window.

Averting depressions and panic since has been an excercise in borrowing and printing ever-more epic amounts of money to stave off the inevitable day of reckoning. Look at the debt piled up since the gold window closed, both public and private. That’s about the only difference I see in the “track record” since FDR’s ushering in of the imperial presidency: America’s excellent FICO and a Xerox.

Thanks to rapid development and a busy stock market during the 20’s, the US developed excessive industrial capacity that was fed by investor equity and extreme margin.

The Great Depression dragged on for several years, just as did the depressions that preceded it. It was deeper because the Hoover government responded to the crash with import trade and by reducing the money supply, exactly the wrong responses to the crisis. It was ended with a massive amount of government spending, spurred on by the war, which created employment and consumed the excess capacity created during the 20’s.

We have had zero depressions since FDR. We had 11 economic panic and depressions prior to FDR. The difference in track record is really, really obvious.

The depressions of the gold-standard era by any measure were mild compared to the 30’s. The biggest difference between then and now is that the government prints our way out of these liquidity problems. That leads to two things that we are seeing or will see over the next couple years.

One-Politicians, being custodians of the Xerox, get to pick the winners and losers – at everyone’s expense. Lehman Brothers dies, AIG lives. The Detroit 2.8 will become (especially if Obama wins) a corporate version of Terry Schiavo, they should be dead, functionally are dead. But by the grace of outside Xerox-powered intervention, nature’s course is denied. These are long-term, very expensive political choices that in a system not Xerox-based, wouldn’t happen.

Two-When the liquidity crisis abates, everyone’s money is worth less because there’s more of it when there shouldn’t be.

I’m definitely not advocating a return to some gold-standard. But when there is no institutional control on politicians making money out of thin air, politicians will flog that power until there is ruin. When FDR by executive fiat in I believe 1933 essentially seized the people’s gold, they got $35 dollars an ounce in exchange for the gold. What is left of that gold is now sitting in Ft. Knox for the most part, and gold is trading right now for ~$900 and ounce. Who got the better deal there over the long term? We wuz robbed.

There were asset bubbles back when there was a gold standard. They were even worse, because the inability to create temporary infusions of liquidity turned those downturns into depressions.

Asset bubbles are not caused by fiat currencies, but by industrial growth sectors that grow too much, too fast, which pummel the banking system once they deflate.

The US experienced **several** depressions before 1929, not just the one that gets all of the attention. Almost all of these were preceded by rapid economic growth that eventually faltered and led to some sort of run on the banks.

Excessive credit contributed to the current problem, but ironically, excessive credit is what is needed to fix it. The key will be to make sure that the infusions of cash into the system are temporary, and not permanent.

Fact of the matter is we live in a world where all currencies are by fiat, and all currencies are designed to inflate, giving the sovereign seingorage and frankly allowing the sovereign to deficit-spend every year while de-valuing its long-term debts it racks up by deficit spending. It’s not that complex. The current financial system reminds me of the Wizard of Oz…all this big-budget show that ultimately when peeled away reveals an old man with a Xerox copying $100’s.

Side-effect of that rigged scheme is economic growth by credit expansion. If the economy isn’t really growing fast enough to accomodate all those Xerox’ed $100’s you get asset bubbles because there’s no useful employment available for all that “capital.” Eventually reality intrudes (somehow). Aggressive credit-expansion followed by collapse followed by stagflation then repeat.

End result in a couple years is the ten-trillion dollar pile Uncle Sam owes is worth twenty or thirty percent less in buying power relative to the buying power actually borrowed initially. Pretty good racket. The only thing that can screw the cycle up and prolong the pain are the same morons who let the Xerox run to long not turning it off for a spell. That’s the only real difference between this and any other fiat money adjustment, the politicians are screwing things up more than usual in response by SPEEDING up the pages-per-minute coming out of the Xerox.

Well, it could have been worse. At least you didn’t jump on the Daihatsu bandwagon.

This recession/depression is not going to be over in 18 months, stop believeing the media drivel. House prices have 18-24 month of declines still left, then they will be almost flat for a year, then you will start to see increases, AT SUSTAINABLE LEVELS. Very few contractors will be making money to be buying fancy new trucks. Add in the fact that the used truck market will be flooded with low mileage trucks that were never used for work at dirt cheap prices and your truck resurgence falls flat. The housing market isn’t going to start to pick up again until you see the median housing price index drop just below $150,000. Last time I checked it was at $200,000 and still dropping slowly. The government can’t fix this it has to correct itself over time.

Your theory on GM surviving the Ch11 is flawed also, mostly wishful thinking. If GM was trying to survive Ch11 they would have filed already, Wagoner is going to push things unto their breaking point where survival will be almost nil. Their are too many cards stacked against them and a long deep recession is one of the big ones.

Also GM’s product has very few bright spots in the future that will be able to sustain that business. You think the current Malibu is going to be competative in 2 years time, it barely is now. The Cruze won’t generate enough profit, Impala will be very OLD and is already a fleet special and the CUV’s are too expensive for the economic conditions. The Volt is just a money loser.

The only chance your idea might be a success, provided you are still in business to witness it, is when the Chinese buy Chevy at auction along with the dealer network. What’s left of it at that point.

As it applies to GM, only consolidators and lunatics are looking at a franchise play. The former usually has plenty of cash flow and access to financial sources… both of which are extremely critical to the survival of any dealer. If you want a newbie, go ahead. Good luck.

In the cities you’ll be going against dealers who have advertising budgets that are well into the six figures and in certain cases, even have their own finance companies. In the less populated areas it’ll more than take years upon years to even get half of what will be a dwindling pie. Then you have the independents who are more than happy to finance a vehicle at thousands of dollars less than your dealership, and with far lower overhead to maintain. Truth be known, the only fellows I see making a killing these days are those supporting the cash-rich immigrant populations, and those who finance the absolute dumbest of the dumb with shoddy products and well-funded legal times (to garnish the wages).

I’ve even had to go from strictly cash deals to offering financing because folks in much of metro-Atlanta simply don’t have money. Period. If you have the tolerance to finance folks on minimal down payments for long periods of time, and deal with everything from accepting merchandise in lieu of cash (got a Honda generator yesterday) to taking trade-in’s that were title pawned (1998 Honda Prelude), then the dealer world may not be for you.

Thankfully I haven’t had a repo yet, but when the job market goes south in 2009 I’m expecting a ton of them.

Shorting the stock on the other hand – now that might be interesting.

The trick to shorting is to hedge the short position with call options so that one doesn’t loose one’s ass.

March ‘09 $9 strike GM calls are going for $1.80.

So, if one thinks that a Ch. 11 might happen by March ‘09 here is an example of what he could do:

1) Buy the Call option for $180.
2) Short 100 Shares of GM, currently at $6.22.

If GM BKs then GM’s shares will probably fall to around .22 (to make the math easy), netting the short seller $600-$180, or $420.

If the government saves GM’s ass completely and shares jump to $20 on the announcement then the call option saves the short seller, and he looses ($9-$6.22)*100 + $180, or $460.

The possible losses are slightly higher than the possible gains, but if one is relatively sure of a BK then the odds, or net expected value, are with him.

Sure beats the hell out of betting the ranch on a GM dealership with its state franchise protections stripped away by a bankruptcy court.

My money is in IRAs, which don’t allow short selling, but if the above strategy makes you rich don’t forget to tip your random internet commenter.

Completely agree with geeber’s response to this. Take a look at the housing inventory charts periodically posted at calculatedrisk.blogspot.com…inventory growth a couple years ago was the first sign of the housing bubble’s collapse, and inventory remains huge. It’s just now beginning to decline, but it has a long way to go. And, unbelievably, just this weekend I saw townhome construction still underway here in the SF Bay Area. Some builders are very slow to learn their lessons.

Of course dealership real estate generally runs for a several million dollars…

Economists never called this recession ahead of time, or they’ve been calling the bottom for two years now. They’re predictive track record is nil.

this may be a long haul, boys.

What’s the easiest way to make a small fortune as a car dealer ?

Start with a large one.

A retired dealer told me the the way to end up with a million dollars in the car business is to start out with two million.