By on September 30, 2008

Before Congress rejected the $700b Wall Street bailout bill, TTAC warned that its failure would send a spear through the heart of the domestic car industry. Unless Uncle Sam made good on The Big 2.8’s blizzard of bad paperand re-started the car loan snow machine, car buyers would crawl off into a deep, dark and cave and enter a period of extended hibernation (or something like that). And lo, it has come not to pass. The symbolic snow machine has become a plain old fan, with excrement heading towards it. “Absent intervention from Congress, the ability of manufacturers to finance motor vehicle sales may come to a halt,” affirms Chris Stinebert, president and CEO of the American Financial Services Association. (That’s the cash-dispensing machine trade group representing Detroit’s Big Three automakers’ finance arms, as well as major foreign auto finance companies.) The Democrat for Dearborn, chairman of the House Energy and Commerce Committee John Dingell, also knows the score (F-R-E-E, that spells free): “If access to credit continues to dry up, the automobile financing companies will be unable to keep vehicles on dealership lots and help customers obtain financing.” And then what? TTAC’s Ken Elias has his take on the prospects, and the Street has theirs. After the bailout bill vote, GM’s stock price plummeted 12.8 percent to $8.50, its lowest closing price since June 1954. Ford stock fell 13.3 percent to $4.17, its lowest level since February 1986. Chrysler is privately held. For now.

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7 Comments on “TTAC Called It: Failed Bailout Leaves Automakers High and Dry...”


  • avatar
    Rday

    Don’t worry. The politicians with the help of the auto lobbyists will come out with some amended plan to bail these ‘buggers’ out. They will not stop until they fleece the american public at least one more time.

  • avatar
    Casual Observer

    http://blog.heritage.org/

    Last week the House approved a $25 billion loan for Detroit’s Big Three that, if signed into law, would cost taxpayers $7.5 billion. General Motors, Ford and Chrysler claim they need assistance to make the switch from gas-guzzling vehicles to more cars with better fuel-efficiency.

    We’ve broken down a few of the reasons why Detroit’s business model has been failing. One reason is simply their choice to remain committed to building minivans and SUVs. As gas prices rose and consumer demand slowly shifted to more miles per gallon, Detroit’s Big Three stuck with SUVs, a once profitable strategy. More competition from the likes of Mazda and Toyota combined with Detroit’s complacency are prime culprits for Detroit’s demise.

    But there’s more to it.

    One area we touched on is the high cost of labor. The United Auto Workers union contributed to a significant increase in cost for the production of each vehicle as Larry Reed and Burt Folsom explain:

    “As recently as 2005, U.S. automakers (led by GM) were paying out a billion dollars a year to 12,000 idled, unneeded workers in a ‘jobs bank’. Senior economist David Littmann of Michigan’s Mackinac Center for Public Policy points out that per-vehicle labor costs for U.S. automakers were as high as $2,500 more than those of foreign competitors, even though those very foreigners were often paying comparable or higher wages and benefits in their U.S. plants.”

    Another problem is the number of dealerships GM, Ford and Chrysler have in the United States. This April Detroit Free Press article notes that Detroit’s big three have 15,710 independent dealerships compared to fewer than 4,000 for top Japanese rivals, which means they sell half as many vehicles per dealership. These excess dealerships “weigh down the retail network as a whole, ultimately costing sales and adding up to $4 billion annually to the automakers’ costs, industry analysts and many dealers say.” This translates to $436 more per vehicle than the industry average.

    And it’s not an easy problem to fix, either. The article mentions that downsizing is difficult because automakers are

    “[…] hamstrung by state laws, individual dealer contracts and the gritty will of dealers who want to keep their businesses alive — or don’t want to sell out at prices automakers can afford.”

    Again, it’s not the taxpayers who should be at fault for how Detroit’s Big Three chose to operate. If the government bailed out every bad business model, we’d be living in a world without innovation and adaptation to consumers’ needs.

  • avatar
    GS650G

    The good people of this country got a temporary reprieve from outright socialism yesterday, but not for long. Soon the airlines will line up for F-R-E-E money and next will be utilities (high fuel costs and lockdown rates are killing them) followed by whoever else thinks they deserve a break today.

  • avatar
    dean

    Using public money to bail out banks and corporations is not socialism.

    Do you think that everything that is not radical free-market fundamentalism is somehow socialist?

  • avatar
    VerbalKint

    Re: “GM’s stock price plummeted 12.8 percent to $8.50, its lowest closing price since June 1954. Ford stock fell 13.3 percent to $4.17, its lowest level since February 1986. Chrysler is privately held. For now.”

    Just wondering… what would the dollar values be if instead of using worthless 2k08 dollars a constant 1954 or 1986 dollar was used to make the comparison.

    I heard that Bloomberg’s newsletter estimated the “$700,000,000,000.00” bailout of the bankers could reach $5,000,000,000,000.00 (5 trillion, if ya lost count of the zeroes…)

  • avatar
    bluecon

    The world economy is crashing. The Big 3 have proved to be the canary in the coal mine.

  • avatar
    Johnster

    dean : Using public money to bail out banks and corporations is not socialism.

    Do you think that everything that is not radical free-market fundamentalism is somehow socialist?

    I think that giving public money to fat cats like bankers and corporate honchos is fascism.

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