By on September 19, 2008

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.

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49 Comments on “General Motors Death Watch 199: Credit Where Credit’s Due...”


  • avatar
    yankinwaoz

    This might have something to do with Bill Heard closing his Phoenix store..

    In June (2008), Bill Heard’s Scottsdale dealership was hit by a $225,000 fine imposed by the Arizona Attorney General’s office for allegedly deceptive advertising and sales practices.

    The attorney general said the dealership advertised special discounts that it refused to give customers, pitched super deals on cars it didn’t have in stock and promised to pay off money owed on trade-ins but didn’t tell customers any negative balance was added to the financed amount for the new car.

    The dealership did not admit liability, adding that most of the issues originated more than two years ago and new procedures were put into place to conform with Arizona laws.

  • avatar

    yankinwaoz :

    Never stopped Bill before. Nor GM from continuing to supply Heard with vehicles despite his well-earned (and court-proven) reputation for fraud.

  • avatar
    KixStart

    Part of the retrenchment and closures here is the further marginalization of stores that really didn’t have a future… bad location or whatever. However, it’s the Detroiters that seem to be going down, not the imports.

    But… I find it amazing that Buick-Pontiac-GMC dealers are being carried by GMC sales (units/store/month 6-9-19, in that order). Trucks still sell? To whom? Why? Well… the G3 will change all that!

  • avatar
    Bunter1

    Wasn’t looney financing, and it’s backlash, a major part of Mitsubishi’s surge and plummet a few years ago?

    I can easily believe that this repo-mess is widespread. IMHO much (most?) of this country’s financial woes stem from the American Consumer’s drunken binge on cheap financing. Yah, they didn’t have to offer the credit, but just because there is a keg in the back of your buddies ‘Rado doesn’t mean you have to get to drunk to crawl home.
    Stupid.

    Oh well, at least the Feds will flush some more tax money over the problem. That will fix everything.

    Bunter

  • avatar

    KixStart “Trucks still sell? To whom? Why?”

    Remember that there is a difference between “need” and “want”. I neither need or want a truck but many of my friends in business absolutely need a large pickup truck. I’m sure sales are way down but GMC along with Chevy were always heavy hitters in the truck market. There will always be truck sales but just to those that need them.

  • avatar
    jerry weber

    Bob had hit on a point, I heard independently here in Pa. A chrysler, dodge, jeep store salesman said that in their last sales meeting they would be changing to a primarily used outlet. My take is that the fleets will get the chryslers first and take the first years bump. Then, the new car dealers fill their lots up with these almost new treasures being sold to them at the dealers auctions. Now, they can offer real bargain prices on year old stuff with 10-12000 miles. (yes they alrewady have been doing this, but in a limited way as they needed to keep taking new inventory) Of course, you get the factory warranty (upgradeable), and the friendly service dept in the back. AS these companies approach 50% of sales to the fleets is their any other way they will be able to stay afloat? Can the Detroit three win in this race to the bottom?

  • avatar
    Orangutan

    I visited a GMC/Buick/Pontiac dealership a few months ago and it made me uncomfortable. It looked and smelled like it was the 1970s, with dark dingy carpet and horrible lighting. I was the only customer in the entire place around 3 p.m. on a weekday.. Eventually the receptionist called a salesman up to the front for me. He smelled of alcohol and every sign pointed to him being moderately drunk. I told him what I wanted to take a look at and prodded him for information I already knew about the car when we got outside to it. He couldn’t give me a single correct answer. It was a stark contrast from the VW dealership across the street where everything was new, clean, bright, non-inebriated, and with knowledgeable staff chomping at the bit to help me.

  • avatar
    yournamehere

    i work at the printing house that did the advertisements for that bill heard dealer. depending on when the ad in question was done i may have even been the artist that designed it. to say the guy is a d-bag is an understatement. i told him repeatedly that some of the stuff he wanted to do was questionable at best…but that didnt stop him and my boss wouldnt refuse a job so…im sure he wished he listened to me now.

  • avatar
    Samuel L. Bronkowitz

    Hey, a picture of Day’s Chevrolet… about 15 minutes from where I grew up! While I totally agree with the “GM Death Watch” series it is worth noting that Day’s is abandoned not because they’re dead, but because they moved out of tiny downtown Acworth, GA to a bigger road with requisite “Wal-Mart sprawl.”

  • avatar
    Matthew Danda

    This is the best editorial I’ve read on TTAC. As consumers of the media we are forced to put the bits and pieces of the current economic situation together on our own, but you’ve managed to bring it all together (housing, credit, inventories, dealers, customers, etc.) and tell use what is really happening out there. Well done.

  • avatar
    Zarba

    As someone who works in a retail financial institution, I can tell you that the amounts of upside-down loans we see from buyers is insane.

    5-10K upside-down is not unusual. The dealers, and the indirect lenders/captives, absolutely buried people in these loans.

    The captives get all the press, but there are some large banks and subprimes that are going to get hammered in this market, and soon.

    What amazes me is that buyers are still trying to flip these cars and the negative equity over into new cars. These “serial buyers” are keeping the market afloat right now, as most smart people are sitting out until the economy settles down. Short-sighted consumers who want to buy a car no matter how much they’re in the hole are just as much to blame.

    This thing has a long way to go before all the dust settles. If GM thinks this market’s going to turn around anytime soon, they’re on dope. The lag affect will have thousands of “toe-tag” loans going belly up over the next 12-24 months, and it will not be pretty.

    Now, if you’re looking for a deal on a used car, it’ll be a great time to buy. In cash.

  • avatar
    Zarba

    Oh, and Bill Heard IS as bad as you hear. The Georgia Dept of Consumer Affairs has more complaints on his dealerships than all others combined.

    Why GM allows them to continue to drag their name through the mud is beyond me.

  • avatar
    Domestic Hearse

    “The repo man has never been so busy.”

    Except, when he’s not.

    Oh, he’s busier than ever. But he’s only been contracted to hunt down a small percentage of the payment deadbeats.

    A far greater percentage of defaulted car loans are still driving around, month after month, waiting for a reckoning with the wrecker-truck that’s still a long way off.

    So why wouldn’t tens-of-thousands of credit criminals have their 0/4/72 Pontiacs, Buicks, Chevys and GMCs pounced upon by Gerberus Motors Acceptance Corp?

    Simple. It costs the bank more to repo than to just let ’em drive for free.

    Add it up. First, you have the repo man’s fees. Second, you have storage fees for repo’ed cars (assuming you have any storage space left). Third, you have reconditioning fees in order to prepare the cars for market. Fourth, what market? And lastly but not least importantly, the dreaded write off.

    So better to just ignore the problem — for now at least. Let the bad-debt cars linger in a black hole rather than a red ledger, is the concensus.

    Until, finally, eventually, the bank must clear the books and take their automotive loss. For now at least, GMAC and other in-house financial institutions don’t want you to know just how bad it really is.

    And it is very, very bad, indeed.

    FOLLOWUP: It seems that birds of a feather share tidings of their good (bad) fortune with each other… Can’t make the payments? Don’t worry, don’t pay (they tell each other). Haven’t made a payment in months and see, still here! The phenomenon spreads like wildfire.

  • avatar
    Zarba

    I spoke too soon. GMAC, at least, cut them off:

    Associated Press

    A Georgia watchdog agency claims that Bill Heard Enterprises, one of the leading sellers of Chevrolet vehicles in the country, has participated in deceptive and misleading business practices.

    In a statement issued Wednesday, the company denied the allegations made by the Governor’s Office of Consumer Affairs in a court filing Friday in Fulton County.

    Bill Heard had filed a lawsuit against the Office of Consumer Affairs in May 2007 under the Georgia Open Records Act to obtain the names of people and dealerships who had filed complaints against the company. The state filed a countersuit in July 2007 saying the company had used misleading advertising that looked like a vehicle recall notice. The state said that advertisement violated the Georgia Fair Business Practices Act of 1975.

    The Columbus-based company has five dealerships in Georgia and nine dealerships in six other states — Alabama, Arizona, Florida, Nevada, Tennessee and Texas.

    The filing Friday came as the company is dealing with significant financial problems. GMAC Financial Services has discontinued credit for new inventory for some of the company’s 14 dealerships.

    The Office of Consumer Affairs suit is not related to the company’s financial problems.

    Consumer Affairs Director of Administration and External Affairs William D. Cloud told the Columbus Ledger-Enquirer newspaper Wednesday that attorneys in the office believed last week they were close to reaching a settlement with Bill Heard that would have included penalties, fines and an injunction barring questionable business practices in the future.

    “Two years ago, we had an agreement and they walked away from it,” Cloud told the newspaper. “We had another agreement and they walked away in the last few days.”

    The Office of Consumer Affairs has been investigating Bill Heard Enterprises since 2003, Cloud said. From July 1, 2005 through April 5, 2007, there were 113 complaints against Bill Heard and a total of 10 against five other dealerships, he said.

    The company issued its statement Wednesday through Atlanta public relations professional Alan Ulman.

    “We have consistently stated that we have policies and procedures in place that require and enable legal, ethical and fair business practices including advertising and finance,” the statement says. “We deny the allegations, will continue to work constructively with the Office of Consumer Affairs, and will address their specific questions directly with them.”

    Fulton County Superior Court Judge Marvin Arrington on March 6 ruled in favor of Bill Heard Enterprises in the Open Records Act suit. The Office of Consumer Affairs appealed the order to release the names. No ruling has been issued on the appeal.

    The Office of Consumer Affairs has asked the court for a jury trial. It is also seeking civil penalties of up to $5,000 per violation and payment of the state’s attorney fees.

    While the state’s earlier complaint against Bill Heard focused on misleading and deceptive advertising, Friday’s filing alleges questionable business practices.

    The practices include charges against various Bill Heard dealerships in Georgia. According to court documents, they include: failing to pay off loans on trade-ins, making the consumer liable for the bank note on both vehicles; misrepresenting a vehicle’s value to third-party lenders to secure financing for customers by saying options and extra features have been added to a vehicle when they have not, and forging customer signatures.

    The court documents say that the Atlanta Better Business Bureau revoked the accreditation of Bill Heard’s Atlanta dealerships on June 12.

    The company has been working since last week to secure new financing to buy inventory since GMAC discontinued its credit. Bill Heard said in a statement Wednesday that its current financial difficulties are a result of a “very challenging but surmountable business environment” caused by “adverse economic conditions, high gasoline prices and our traditional product mix.”

  • avatar
    KixStart

    Sherman Lin: “There will always be truck sales but just to those that need them.”

    I understand that. But, of the trucks I see on a daily basis, relatively few are recognizably trucks explicitly for work. Those are characterterized by a) having a large, ugly sign; b) a tipsy pile of ladders on a rack (watch out going around corners); c) bins, bins, bins; d) they’re usually older and more beaten. The nicer, newer, better equipped pick-em-ups seem more often to be private vehicles.

    I rarely see SUVs identifiable as work trucks. The ones I see that are “business” vehicles have a discreet decal, somewhere, to justify the deduction. Low-profile tires and chrome rims, of course. The only Hummer “work truck” I’ve seen here that belongs to one of the more obnoxious real estate agents, who simply uses it like a car. Why not get a Cadillac?

    Now, it could be that, at fire-sale prices, the owners or the real work trucks are spending a bit of money to move up to something newer and maybe nicer but, if money’s tight, that still seems a bit unlikely.

  • avatar
    Steve_K

    Let’s go back to the paragraph about sales per franchise for a minute. Saturn (47), Chevy (46)

    Would anyone like to make a “Saturn is a stupid brand that must die” comment at this time? I think Saturn’s current lineup makes sense and is a vast improvement over the original plastic beer container cars.

  • avatar
    geeber

    Kixstart: Now, it could be that, at fire-sale prices, the owners or the real work trucks are spending a bit of money to move up to something newer and maybe nicer but, if money’s tight, that still seems a bit unlikely.

    On an anecdotal level, a friend who is an electrical contractor recently told me that the last quarter was his worst ever – and he started his business during the 1991 recession. He actually NEEDS a new truck, but is trying to nurse his present one along. He just cannot afford one right now. I doubt that he is alone…

  • avatar
    Redbarchetta

    GREAT ONE ROBERT! It’s all tied together and there is no escape for GM for the forseeable future. It’s only going to get worse for them as sales continue to drop as the housing market and general economy continue to tank, and tank big time.

    geeber and kixstart I think you are kind of right about the truck market. Construction companies, GC’s, subs and almost all the trades are hurting right now. If they aren’t completely folding they are tighting their belts to try and survive the building decline. Material prices are hurting margins even worse for projects already going, killing anyones profit except the people making the raw goods. It’s hard for us to keep our project budgets in line with the way material prices jump from month to month, it’s even worse fo the guy who bid the project and guaranteed a price.

    There is one thing I think you guys are forgetting, there is still a substantial amount of building going on from the government, institutional and medical sector at least for right now. And usually the big boys get those projects, the ones who can afford to buy new trucks. We are currently buried up to our eye balls in work that should keep us busy for the next 12-18 months if not more. But we only do military, colleges, and correctional(boot camps, jails and prisons) architecture. I bet anything most of these truck sales are to commercial fleet sales, large contractors, federal and state governments, industrial complexes, etc. The deals are so good right now on trucks and they are selling them at a loss that it makes sense to replace the old work trucks with new ones, while they can afford it. Once that is done there won’t be much of any body left who needs them. Classis GM fashion they are over supplying the market, because their production is out of line with demand. When no one who needed one needs one new and the people who want one can’t afford one or could just buy used because of the over supply their sales will drop to almost zero.

    Wait till this comes back to bite them in the ass like with the toe tag sales of yore, then the red ink will really start to flow. If they think their is a recovery coming they are sorely deluded or just plain stupid. Of course they couldn’t see any of this coming and originally thought sales would be up by this time in 2008 so I think they are a little of both but more of stupid.

  • avatar
    toxicroach

    I do bankruptcy law, and I have a couple of clients who have surrendered their trucks to the creditor.

    Except the creditor hasn’t bothered to show up to take the trucks!

  • avatar
    M20E30

    That picture is extremely depressing.

  • avatar
    Steven Lang

    A couple Fridays ago, I bought a 2004 Mercury Monterey for $4,000. Two months prior, I bought a 2005 Ford Freestar SE for $4750.

    You can’t ‘buy’ that level of depreciation in even the near-new market at this point. But give it time… it’ll get there.

  • avatar

    What absolutely stuns me is that the nearby Chry/Dodge/Jeep franchise in Columbus is building a new building! Visible from the freeway. Bad timing, no?

    John

  • avatar
    hltguy

    JK43123: Perhaps the land they are building it on belongs to Native Americans, so when the car dealership goes under, they can build a casino on the the property. Seems everywhere I travel there are huge indian casinos.

  • avatar
    ihatetrees

    Great piece, Robert.

    Zarba:
    What amazes me is that buyers are still trying to flip these cars and the negative equity over into new cars. These “serial buyers” are keeping the market afloat right now, as most smart people are sitting out until the economy settles down.

    My personal take is that 75 percent of the Detroit market is based on the horrible mathematics and financial skills of the average American. That’s what you get when you pay degree holding mathematics teachers the same as English teachers. Well done, NEA! Keep ’em poor, stupid, and in hock to their necks…

  • avatar
    Tony Teal

    In your recent article titled General Motors Death Watch you had a picture of a empty dealership representing it as a auto dealership that had gone out of business. This cannot be any further from the truth. This picture is actually a picture of the old Day’s Chevrolet dealership. We are now located at 3693 N. Cobb Pkwy. in Acworth, Ga. We have been in business since 1959 and owned by the same family during this time. Seeing this picture represented this way I just felt I had to say something. As your article stated times are a little tough right now but we will survive because we still do business the right way. We treat people fairly and actually advertise what we can do, not just some unreachable number to get the customer in the door.There’s not many of us good guys left so please get your facts correct before releasing another article. Thanks, Tony Teal General Manager at Day’s Chevrolet and proud of it

  • avatar

    Tony Teal:

    In your recent article titled General Motors Death Watch you had a picture of a empty dealershipp representing it as a auto dealership that had gone out of business. This cannot be any further from the truth. This picture is actually a picture of the old Day’s Chevrolet dealership. We are now located at 3693 N. Cobb Pkwy. in Acworth, Ga.

    I apologize for the misake. I have removed the photo.

    I deeply regret the false association, and the negative aspersions cast upon your dealership. In other words, my bad. Sorry.

  • avatar
    50merc

    Steven Lang: “A couple Fridays ago, I bought a 2004 Mercury Monterey for $4,000. Two months prior, I bought a 2005 Ford Freestar SE for $4750.”

    I was hoping you’d join in with word about what’s happening where the rubber meets the road, er, auction ring. At those prices, it seems to me a Monterey or Freestar is a great value for spacious, comfy highway cruising. CU says they’re mediocre compared to Odyssey or Sienna, and I suppose the retail customer has to pay about three K more than wholesale, but even at $7-8K, that’s not bad…

    In Atlanta, are you seeing a wave of repo’s hitting the auctions?

  • avatar
    morbo

    Right now (well actually last week before we stopped being a capitalist society and became socialists) is the greatest time to but a new car/truck at least since 1929 if not ever. About 2 years from now will be the greatest time to buy a used car/truck at least since 1931 if not ever.

    I hope I’ll be able to pick up some Hemi Challengers or maybe a Ram on the ultra cheap in about 18-24 months.

  • avatar
    Stu Sidoti

    It’s all about getting drunk.

    IMHO the U.S. auto market has been propped up by artificially inflated sales ever since 9-11 and the ‘Keep America Rolling’ campaign. If you remember the depressing malaise we collectively felt in this country in the weeks after 9-11, you may also remember how bad the projections were for retail sales-the outlook looked pretty grim. At the time, ‘Keep America Rolling’ seemed like the right idea for a very unusual set of circumstances and it was copied by many other OEMs after they saw the sales success it gave to GM’s sales reports upon it’s inception…sales were not only up relative to the 9-11-induced retail sales drop-off, sales were up in a big way overall…even Zarrella was surprised at it’s success.

    ‘Keep America Rolling’ seemed like it would act as a good temporary sales boost and then when the country’s retail buying habits returned to normal, we’d all go back to doing business as usual. Business as usual pre-2001 for Big 3 dealers meant making a large percentage of their profits from the service and used cars department and a fair amount of money from financing as well. Ever since 9-11 and the ‘Keep America Rolling’ type of plans, a new dealership business model started to come into play because of the availability of ostensibly cheap money, i.e. zero percent, no money down loans for people with good credit and low interest loans for people with marginal credit and great leasing terms for nearly everyone. This ‘new’ dealership model was fun, clean and easier to run than the old business model of used cars, service department and financing profits-the new cars showed up, you floor planned them for a few weeks, customers rolled in the door and you sent them home with a new car at full retail and with low or no interest. Quick. Easy. Clean. This change in the business model fooled a lot of dealers into thinking they were just retailers now selling a high-ticket item to nearly anyone who walked in the door. They started to ignore their service departments because the newer cars they were selling were quite reliable; they rarely saw these customers as their cars were racking up the miles instead of sitting in service bays. The new dealership-as-retailer model led to a building boom for dealers in the last seven years that seems to have no end with lavish waiting rooms, wi-fi, expresso machines, free food dozens of tv screens with 200+ channels of cable to watch; new dealerships can be very nice places to visit now. The new dealership model also led to personnel changes as many dealers sought out sales staff and people with experience at Nordstrom’s and Neiman-Marcus type of environments and less experience at the old ways of working your way up from the used car lots to the dealerships, all the while growing your rolodex of regular customers who’s trust you had earned in your sales career-Nope, in the new dealership model we could just about pluck nearly anyone off the streets with a squeaky-clean upbeat persona and have them be the new face of our business (do you remember the Saturn ads featuring the nuns as sales-folk or what I think Saturn called them ‘Sales Advisors’ ahem…and amen. Nuns?!?!… that’s about as squeaky-clean as one can find). At first once the new post-9-11 dealership model took off, dealers were reluctant to do business this way because they were all assured these cheap-money terms would not last. Well after a few YEARS of these terms they probably figured that this was the new paradigm and the future was now. Hmm…it all seemed good at first but guess what happened next? Nearly everybody who wanted a Big 3 car from 2002-2005 got themselves one…real cheap too, so by the time we got to 2006/7 the new dealership model started to show some flaws in the plan and that’s when it went from a good temporary idea to boost sales post 9-11 to flat-out crazy because in 2005/6 that’s when they started putting cash on the hoods of cars…even Toyota dealers got caught up in it, a car line that needs no incentives was even giving away nearly-free money. Ridiculous and yet indicative of the market realities of the time as nearly every dealer was clawing and scratching to keep winning business from the habitual buyers who flooded the 2002 markets and now in 2005/6 were coming back for an even better deal; and that leads us to today’s disasters.

    Today many Big 3 dealerships have a lot of folks on their sales staff who have not had the ‘sell’ a car in nearly seven years; the customers walked in the door and walked out with free money and great deal on a new car. Many sales staffs haven’t had a lot of experience selling used cars because for nearly seven years, new cars and especially new-car leasing was cheaper than and a lot less risky than buying a used car-so people bought new. The Big 3 automakers and their friends in the dealers have had two, maybe even three sales cycles out of this little experiment that should have ended a long time ago but they were all way too drunk on what seemed at first like nearly never-ending sales gains and (small) profits for all. Once the original sales boost ran out, no one seemed to have the guts to stop this eventual train wreck that has now been ultimately stopped by reality and ultimately, the newer more realistic costs of borrowing money. No more great terms unless you have great credit. No more cheap floor-planning. No more high volumes, no more sales gains for a long time as the new credit terms have just taken so many people out of the buying market and a whole lot more people out of the leasing market. ‘Keep America Rolling’ and other OEM’s similar programs were a great idea at the time and served their purpose…but they should have ended a looong time ago. The sales slump we currently find ourselves in will last quite a while….there’s no free money, no cash on the hood, no great leasing terms anymore. So Big 3 OEMs and dealers…How are you going to get people to come into the showroom and buy? Oh yeah-that thing called Product. Robert and others on the Web have been pounding away on their keyboards for over a decade trying to tell you this…the best product will win, especially now that you can’t just give the cars away to anyone who walks in the door with an address, job and a Social Security number.

    Time to sober up folks, the party’s over. Oh yeah one more thing Big 3 folks…those rascally Asian OEMs that have been eating your lunch for the last seven+ years even while you were giving cars away…they can STILL afford to give their cars, their money and the great deals away if they wanted to because they have lot’s of cash-Toyota makes a billion dollar profit each month-a Billion!-and if they decide to keep on dealing that just might spell the real end for you…

    Spend that $50 Billion wisely…I suggest you don’t get drunk with it.

  • avatar
    Packard

    Portraying, as has been typical of both press and politicians, the current financial crisis as a “housing crisis” is a mistake. It will be equally a mistake for the government to try to bail it out by taking over all of the “bad debt” underlying defaulted mortgages. Non-performing mortgages are only the tip of the iceberg.

    The entire automobile industry has been financing it sales for a decade as though it were a Ponzi scheme. Rolling over loans that were upside down into new loans that become upside down even sooner has put the industry in the position that it cannot make new car sales on an economically rational basis. The industry has been living a lie about the underlying value of used cars for years, with “certified” used car programs which were really just a way of artificially inflating resale values to keep lease rates high.

    This hasn’t just been Detroit. Toyota has been one of the worst at this, with most of its new car sales on six year loans and many on seven year loans. It is axiomatic that these loans will never be paid to maturity – the underlying value of the vehicle will be less than the outstanding balance of the loan long before the end of the loan payment schedule. It is equally obvious that BMW, Lexus and the other foreign “luxury” brands that depend on leases as the primary source of new car sales are jut playing the same game, though better disguised. Only by pumping up residual values have these companies been able to keep “selling” cars. But, though these brands have had higher resale values than domestic competitors, the lease rates have still been based on residual values that assumed an inflated resale value. Moving the depreciation hit to the third buyer of the vehicle has been the primary purpose of “certified” used car programs, really nothing more than a Ponzi-style trick to keep new car lease rates low.

    The federal government cannot solve the basic problem by absorbing huge amounts of mortgage debt. The underlying problem is that the easy money policy of the Federal Reserve started by Greenspan built an expectation in the economy on which vast numbers of people came, logically, to depend – home buyers, auto executives, just about everyone. The assumption was that you could always borrow more tomorrow. That assumption was based on the predicate that we had always been able to borrow more yesterday.

    The warning signs on this have been out there for years. They were ignored because no specific business – for example, GM – could competitively afford to cut back easy loans and the politicians loved the easy money approach because they used it to buy votes. The Federal Reserve could have prevented this. But, Alan Greenspan was one of the major culprits in creating this mess, so the Fed did nothing.

    The underlying problem, which is not addressed even by the latest federal trillion-dollar bailout scheme, is that there no longer is an expectation that the future will bring the ability to borrow enough to keep the spiral going upward.

    Even if the feds take over all of the housing industry’s “bad debt,” it won’t change the fact that the value of the collateral has plummeted because people no longer believe they’ll be able to sell for more later, a belief dependent on the understanding that money is easy. Money won’t be easy, so the federal takeover is only designed to absorb the impact over a longer period of time than the market would do alone.

    That, however won’t really work unless the economy continues to grow.

    Whether that can happen, however, is doubtful, because “easy money” was what has been the basis of much of consumer spending of the last decade, spending which won’t be occurring without the easy money atmosphere.

    Of all the consumer industries, autos have been perhaps the most dependent on this ‘borrow from tomorrow to pay for today’ economic approach. Given the low amount of capital of the domestic automakers and the historically high capital demands of that industry, there is no reason to believe that GM, Ford, or Chrysler can survive. They might be able to survive a shift in consumer preferences to smaller vehicles, but they cannot survive the decrease in sales which is the inevitable consequence of the bursting credit bubble.

    In that setting, it’s worth remembering that having the federal government take on a trillion dollars of debt isn’t going to make it any easier for the federal government to promote economic growth by cutting taxes, and adopting policies that encourage actual productive investment.

    While the domestic automakers look to the federal government to bail them out, others are already beginning to wonder who’s going to bail out the government. It’s a fair question. The government may be the lender of last resort, but it’s also the ultimate borrower.

  • avatar
    Morea

    Packard for President!

  • avatar
    Mark MacInnis

    This whole GM thing reminds me of the whole Mayor Kwame Kilpatrick thing in Detroit. Everyone knew he was guilty, everyone knew it was a matter of time before he either quit or was thrown out. He delayed, denied, obfuscated, lied, mislead, misdirected ad nauseum, but deep down he HAD to know that the piper was coming and wanted to be paid…..just like everyone with any kind of sense knows GM can’t avoid C11. I can’t imagine that Red-Ink Rick and the board of bystanders are in such denial that they still believe they can avoid the inevitable. As unpalatable as it may be, it is absolutely unconscionable to delay it any more. I am all for the right to try every available reasonable avenue to avoid it, but you reach a point where continuing to deny the 800 lb gorilla in the room strains your remaining credibility to the point where you have none when you really need it….on the day when you have to announce you are filing, and have to sell everyone that you have a plan to emerge…when they do have to bow their heads and file, how will anyone have the ability to believe Rick and the Board about anything, since they’ve been doing the Kwame so long that no one can believe ANYTHING they say.

    “Recognition that there is a problem is the first step to solving the problem.”

  • avatar
    menno

    Packard hit the nail on the head.

    My supposition is that by 2012, the US car market will be 1/3 the current size. Just as happened by 1933, after the great depression started in 1929.

    Acura? Barely hanging on if only because of Honda’s relatively deep pockets.

    Audi? Probably not. Very probably not.

    BMW? Possibly surviving, but a niche player much as Porsche has been hitherto.

    Buick? Dead.

    Cadillac? Dead.

    Chevrolet? Dead (along with all of General Motors). No more new Corvettes. Not that anyone can afford them who would be wanting to buy one anyway.

    Chrysler. Dead. Kaput. Chapter 7.

    Dodge. Ditto – dead as a doorpost.

    Ford. Gone. Didn’t even make it as long as Studebaker, eh? (1852-1966).

    GMC. Dead.

    Honda. Surviving, but generally tightening its belt.

    Hummer. Long gone.

    Hyundai. Surviving, tightening its belt.

    Infiniti. Probably a dead brand.

    Jaguar. Perhaps a hint of a pulse in the UK and India, probably built in India. Not sold stateside, though.

    Jeep. Long dead, along with Chrysler. Another icon gone.

    Kia. Surviving, solely due to Hyundai’s deep pockets.

    Land Rover. See Jaguar.

    Lexus. About 1/5th of the volume, but with an owner like Toyota, continuing to hang in there as one of the only luxury makes out there. For a far smaller luxury market.

    Lincoln. Gone.

    Lotus. Lots of trouble, usually serious. Serious as a heart attack – long dead, now.

    Mazda. If allowed to survive “post-Ford”, barely hanging on – probably propped up by the Japanese banks, government, anyone with a (spare) “Yen” to see more than a couple of Japanese car companies survive. Folded into Nissan in order to survive?

    Mercedes-Benz. Shockingly, gone, after Europe’s economy crashes along with the US.

    Mercury. Long dead.

    Mini. Possibly continuing on, not necessarily in the U.S. though.

    Mitsubishi. Unless they try a merger with Suzuki, very very dead.

    Nissan. Not so healthy, neither is their siamese twin (Renault) but surviving – just. Vastly downsized, possibly merged with Mazda?

    Pontiac. Long dead, along with Holden, which supplies some cars.

    Porsche. Shrunken down after the fiasco of buying Volkswagen just as everthing tanked worldwide. Barely hanging on – if hanging on.

    Saab. Joined with the other un-S-cessful cars, like Studebaker – in auto heaven (or hell).

    Saturn. See Sob – I mean, Saab.

    Scion. Just another experiment gone Sadly wrong and given up on.

    Smart. Ouch, death Schmartz (hurts). No market for a tiny two seater when nobody has any damn money, is there?

    Subaru. Something starting with S, surviving – if only because it’s part-owned by Toyota (owner of deep pockets).

    Suzuki. Kaput in North America but not elsewhere, like Japan, India, China, etc. (See comments under Mitsubishi).

    Toyota. The one who wins in this market is the one with the strength to be able to survive a 2/3 downturn in overall market, and come out with an increased market percentage (because it was able to survive rather than go belly-up).

    Volkswagen. Gone! At least in America. Talk about bad timing – trying to build factories in a nation just prior to a calamatous economic collapse…

    Volvo. Gone.

    Surviving additions – niche player Mahindra & Mahindra. (Deep pockets back home and a small market for diesel work trucks doing the trick).

    The “backlash” of all of these crash & burn scenarios will be that NO Chinese cars will succeed in vastly miniaturized US auto market.

    The middle class (buyers of most of the cars) will have been shrunken so badly and shaken so badly, that – as mentioned – only 1/3 as many 2013 cars will be sold as 2008 cars.

    So, we have: Acura*. BMW*. Honda. Hyundai. Kia. Lexus. Mahindra & Mahindra*. Mazda*. Nissan. Porsche*. Subaru*. Toyota.
    *niche players.

    That leaves, by my estimation, four corporate major players in the N.A. market, all of them Asian.

    Honda – Acura.

    Hyundai – Kia.

    Nissan – Mazda.

    Toyota – Lexus – Subaru.

    Look at what happened during the Great Depression. Only the strongest survived, and the ones which limped through the worst of the depression did not survive for long (Hupmobile gone by 1941, Graham gone by 1941, Auburn gone by 1936, Cord gone by 1936, Duesenburg gone by 1936, Cunningham gone by 1933, DuPont gone by 1933, Franklin gone by 1934, Pierce Arrow gone by 1938, Stutz gone by 1934, Reo gone by 1936).

    In 1920, before the short sharp depression of that year, there were some 266 automobile manufacturer “marques” sold in the United States. By 1942, there were about 18 “marques” left.

    This is how natural selection works, when you let it. Letting the marketplace work allows recessions/depressions to be short & sharp, like 1920-1921. It’s like a snake losing a dead skin.

    Tinkering with the levers behind the curtain simply prolongs the pain (a la 1929-1941), and in fact, recently Bernanke, the ex-“Fed” manager, actually admitted that the “Fed” actually CAUSED and EXTENDED the Great Depression. Pity they’re simply going to make/already have made similar mistakes from 2001 through 2012, isn’t it?

    Trying to manipulate money and hold off recessions is like trying to keep a lid on a pressure cooker even while turning up the heat more and more – after welding the relief valve shut.

    Everything LOOKS just fine in the kitchen for awhile until the explosion. Then, nothing looks right any more and lots of innocent bystanders get hurt really badly. And it takes a lot of rebuilding to get a kitchen again.

  • avatar
    RGS920

    I don’t really understand why we have dealerships as we know them today. Essentially they are just middle men, another step in the chain. You could essentially have an “Experience Center.” Have an example of each model in stock with popular options and schedule a time to come in and test drive it.

    Then sit down and order it direct from the factory. Hell, even let the customer customize it instead of making him have to choose horrible options packages with stuff you don’t need. None of this excess inventory, just on demand orders from the experience center to the factory, then ship the car direct to the experience center in 3 business days. Do all the prep at the factories. Have the service departments in the experience center or in a seperate building doesn’t really matter. Does anyone actually like going to dealerships and have to deal with people trying to hustle you?

  • avatar
    Honda_Lover

    Next bailout:

    “GM dealerships must be saved” – Congress 2009

  • avatar
    mel23

    I don’t know what emergency measures were enacted post 1929 nor how much power was usurped by the fed. govt. but, in case you haven’t seen it, take a look as some of the provisions of what Paulson sent to congress in the way of the power he wants:

    ———-

    The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

    (b) Necessary Actions.–The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

    (1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

    (2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

    (3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

    (4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

    (5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

    Sec. 8. Review.

    Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
    —————-

    Look at Sec. 8.:
    I seem to remember something about checks and balances. I’ll take my chances with a depression rather than this. Maybe congress will put some safeguards in, but I’m not counting on it.

    If McCain wins, his recklessness in picking his VP is not reassuring as far as Treas. Sec. is concerned.

  • avatar
    Stu Sidoti

    Packard: Thank you…your writing reminds me of Dr. Walter Williams, another brilliant person who puts today’s economic news in crystal-clear historical perspective.

    mel23: Thank for enlightening us all about this legislation…this bill NEEDS to be stopped; those terms seem much worse than Socialism, they read like the Feds run the show in any business they ‘rescue’. While that may not seem so outrageous a set of rules for Fannie and Freddie as they were government subsidized entities anyway, it surrrrre would be a bad set of rules for the Big 3 which are publicly and privately held companies and not federally sponsored. Careful what you wish for Big 3…you may find yourself dealing with a whole lot more federal intervention than you’d like-I can see it now…in 2-3 election cycles, we will witness people protesting the retail price of cars at political conventions!! That would be a sadly ironic day.

    I worry for the future of Capitalism in this country with the actions being proposed. The market ultimately corrects itself in the long run but it sure does seem like a lot of politicians are trying to make political hay out of claiming they have ‘fixed’ the problem when all they’re really doing is helping out their old buddies at Fannie and Freddy who have been getting very wealthy at the expense of taxpayers…now they’re getting even more money pumped into their failed business model. 95% of all mortgages are paid on time and up-to-date. So the Fed thinks we need to spend 700 Billion or more to sure up the remaining 5%?!?! Something fishy is going on here…

  • avatar
    Honda_Lover

    September 19, 2008 = the day capitalism died. Welcome the USSRA(United Soviet Socialist Republic of America). The irony is not lost on me.

  • avatar
    CyberNick

    Time to move everything away from the USD (probably late now, but better late then never) as it’s well on its way to become worthless and if this mega bailout of Wall St. plan gets approved by Congress, it will be sooner rather then later…

    Check out the articles on EuroPac.net … Scary!

    http://www.europac.net/

  • avatar

    Steve_K
    Let’s go back to the paragraph about sales per franchise for a minute. Saturn (47), Chevy (46)

    Would anyone like to make a “Saturn is a stupid brand that must die” comment at this time? I think Saturn’s current lineup makes sense and is a vast improvement over the original plastic beer container cars.

    Saturn’s sales per franchise numbers are that high only because of the relatively low number of Saturn franchises (435 as of 1 Jan 08). In comparison, there were 3,976 Chevy franchises as of 1 Jan.

  • avatar
    joeaverage

    Honda_Lover: September 19, 2008 = the day capitalism died. Welcome the USSRA (United Soviet Socialist Republic of America). The irony is not lost on me.

    Would that be b/c the 19th is “Talk like a Pirate Day” or the fact that in 1778 the Continental Congress passes the first budget of the United States or would it be that Butch Cassidy and the Sundance Kid commit their first robbery together?

    I too would like to take my chances with a depression rather than see the gov’t bail out those who were reckless with their money and who will do the same again. First they were were reckless with their money and now they are being reckless with my money (taxes).

  • avatar
    200k-min

    menno – Interesting take on who’ll be left standing in a 2/3 contraction of the US car market. While I agree that we are in for major contractions I think you failed to mention the bigger catalyst IMO. That would be oil – particularly the supply and price. With the USA importing roughly 70% of the energy supply that fuels the internal combustion engine the market here is held hostage to the oil exporting countries. As we’ve seen in recent years, volatility in the price of oil has dire effects on the sector. I don’t believe that hybrids, electrics or other alternatives will have any prayer of a chance keeping the market at its current volume in a world of constantly volitale energy markets.

    I do have to disagree with your analysis that all of the Detroit 2.8 will ultimately fail. Even in a prolonged depression the gov’t will still be purchasing vehicles. And given the recent history they will not let all the domestic companies fail. One will survive in some fashion, even if only to provide fleet sales to the federal gov’t.

  • avatar
    menno

    Hi 200k-min

    Well, if one of the Detroit 2.801 is likely to survive, I would guess it would be Ford, which at least has a few things going for it that GM and Chrysler certainly do not.

    First, Bensen Ford had the cajones to actually man up and say “I’m not good enough for the job – we need someone else”. If Ford Motor survives, future historians will point to this as the catalyst. (Let me also say that I think Bensen Ford would have been fine in “normal” economic conditions as a CEO – he had some good ideas).

    Second, because of #1, the totally entrenched ideas of Detroit are slightly less likely to be entrenched at Ford, improving their chances of survival.

    Third, the Ford family has 40% ownership of the company and there is nothing like total economic obliteration to Focus one’s energies (sorry for the pun).

    But I still only give Ford a 50/50 chance of living, even with monies tossed their way by the Fed Gummint.

    However, I hadn’t considered your scenario about the US Gummint buying cars. Yep – they do have a habit of buying from US companies and companies which need a leg-up. My own father worked for the Department of Agriculture when I was a young-un and he brought home a 1962 Studebaker Lark 2 door station wagon gummint car (a car which wasn’t even on the books as being available to the general public that year – and no, it didn’t even have a rear seat). He said it had a 259 V8 and 3 on the tree, and when he had to turn it in to a Veteranarian and pick up a 1963 Plymouth (another company which was in dires straits at the time – again still yet – some things never change) he told the Vet “she’ll do 70 in 2nd!”

    Next time he saw the Vet, the Vet said “you’re wrong…. she’ll do 75 in 2nd!” (Yes the Studebaker 259 was nearly unburstable – it had good breathing, mechanical valve lifters, a short stroke and huge amounts of cast iron in the block and heads – 6500 rpm was certainly within range! – when most Detroit iron would breathe their last over 4800 rpm.)

  • avatar
    joeaverage

    menno: I hadn’t considered your scenario about the US Gummint buying cars. Yep – they do have a habit of buying from US companies and companies which need a leg-up. My own father worked for the Department of Agriculture when I was a young-un and he brought home a 1962 Studebaker Lark 2 door station wagon gummint car (a car which wasn’t even on the books as being available to the general public that year – and no, it didn’t even have a rear seat).

    Yes they do indeed. Drove a white AMC Concorde wagon the summer of ’87 while I had my ’66 Mustang apart for paint and an engine. Concord was a former TVA car and had a straight six, auto 3-speed, cold a/c, pwr steering and brakes. That’s it. Don’t even think it had a radio. No back seat either. Just a seat back frame screwed to the floor for a cargo carrying surface. Really basic but it did the job reliably.

    Wonder how many current gov’t vehicles are so plain and basic? I’ll bet few. Wonder what we could be saving by requiring all gov’t vehicles to be so basic again?

    I’m all for it.

  • avatar
    50merc

    200k-min: “the gov’t will still be purchasing vehicles”

    Yes, but those cars will eventually reach the consumer market, which is already saturated. There are too many cars chasing too few buyers.

    So here’s the solution: Look, $25 billion will buy a million cars–and that’s in addition to the cars the feds already buy on a regular basis. So, on a random basis vehicles coming off the line are pulled aside as part of the gummint’s million vehicles. They are promptly sent to the crusher. (Or, to save energy and keep the recycled steel from hitting the market, put on a barge and tossed into the ocean to create artificial reefs. Or sent to an impoverished nation as foreign aid.) In the depression the feds bought baby pigs and killed them to keep them off the market. For decades the gummint bought surplus wheat, soybeans, etc., to keep it from pulling down commodity prices. Why not do the very same with cars? (P.S. Car-crushing and reef-building jobs will be reserved for UAW members, thereby assuring political support.)

  • avatar
    200k-min

    Don’t underestimate the US Government when it comes to anything. The gov’t will always buy enough new vehicles just to keep someone in Detroit afloat. The president isn’t going to start riding around in a German or Japanese motorcade. All levels of gov’t buying from state/local all the way up is enough volume to keep at least one of the 2.8 going, even if their resale is worthless.

    Don’t forget that I also made mention of price and availability of oil. I don’t see a future of saturated markets. Older gas guzzlers will be worthless. I imagine there will be tax deduction incentives to have your old SUV crushed. Fully expect a huge campaign to get the older and inefficient vehicle fleet off the road for good. If for nothing else than a way to boost sales at what’s left of the 2.8

  • avatar
    noreserve

    RGS920 :
    September 21st, 2008 at 2:22 am

    I don’t really understand why we have dealerships as we know them today. Essentially they are just middle men, another step in the chain. You could essentially have an “Experience Center.”…

    That would just make too much sense, now wouldn’t it? They’ll say that the factories aren’t set up that way. That customers will never go for it. That they want to drive out in something – TODAY. They’d also be wrong. I agree that it will have to more closely resemble the model you’ve outlined. There is far too much money tied up in sales lizards, retail brick and mortar, inventory costs, interest on loans to buy that inventory, etc.

    When the market changes – as it has started to now – we’ll see a lot of weeding out of the inefficiencies. I’ve never understood why the dealership couldn’t be less of a ship and more of a raft – something to nimbly get you to the product in a way that you want. Something without the baggage of the old model that no one really likes.

    It’s really frustrating to go to a dealership when a new model comes out, only to find that they only have two of them in stock – and they’re both sold, so you can’t even sit in them, let alone drive them. There should be at least one model of everything a dealer sells available for test drives. The other issue, of course, is that many have to settle (or reach) for a model that is not equipped as they would like, simply because it’s the one that is on the lot. Some are going to want that instant gratification. Most, I bet, would be willing to wait a while to get what they want – particularly if they could be given a loaner until theirs comes in from the factory.

    I agree that the future of retail is going to look far different. A typical showroom will provide what we’re describing, and have a much, much different environment than what we are used to. They will still have a limited number of vehicles in a much smaller footprint of a lot that will be available for those who simply want one today – and happen to be fine with how it’s optioned. But dealerships won’t be able to have the acres upon acres of cars sitting in the sun costing them money. Factories and supply chains will be configured to adjust to this new way of selling.

  • avatar
    joeaverage

    50merc: Look, $25 billion will buy a million cars–and that’s in addition to the cars the feds already buy on a regular basis. So, on a random basis vehicles coming off the line are pulled aside as part of the gummint’s million vehicles. They are promptly sent to the crusher.

    Now that riles me up. What a waste of any machine. I know insurance companies and car makers do stuff like this all the time though. How about some sort of gov’t lottery to give these things away for a lottery ticket purchase. Use the funds to fund the schools or orphanages or something. Hell, give me one of those free cars – I wasn’t going to buy a new car anytime soon anyhow – so no new car sale lost.

  • avatar
    fallout11

    Followup: Bill Heard’s entire retail chain, the largest GM dealership chain in the US (14 locations), has closed permanently and filed for bankruptcy. 3000 employees are out of a job.
    http://www.ajc.com/business/content/business/stories/2008/09/29/bill_heard_bankruptcy.html
    The company said in a statement last week that the combination of rising fuel prices, a slowdown in car sales and problems in the banking sector piled up to “create a business environment in which the company simply did not have the resources needed to continue to operate.”

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