Bailout Watch 462: ChryCo Bailout Supported Discounts Exposed!
I know, huh? Anyone who spent five minutes thinking about Motown’s $42.4 billion (and counting) feast at the federal bailout buffet would figure out that the beneficiaries are using tax money to discount their products—to support an unsustainable small market share. OK, that last bit’s a bit technical. But the bailout = discount = unfairness media meme is just gaining traction in the MSM. And it’s no small point. As I’ve pointed out here before, those federally-sponsored new car discounts effectively punish automakers who didn’t run their companies into the ground and threaten their products, profits and jobs. The Detroit News wakes-up to the story this morning. Chrysler, you are the weakest link.
You can get a $31,405 Dodge Ram pickup for $17,975 in Denver, much to the delight of Chrysler dealers who are using some significant incentives to get people into showrooms. Chrysler LLC is spending big — to the tune of more than $5,600 on average per vehicle in incentives — to reverse its fortunes after months of dramatic sales drops. But the sales strategy is raising some eyebrows as the Auburn Hills automaker has received $4 billion in federal aid and is presenting a case for more help leading up to the March 31 deadline to show its operations are sustainable and its loans can be repaid.
To her credit, DetN scribe Alisa Priddle lays out—though doesn’t highlight—GM’s participation in this Madoff-like scam.
In February, Chrysler spent an average of $5,608 per vehicle on incentives, according to Edmunds.com. That compares with $3,681 from General Motors Corp.; $3,384 at Ford Motor Co.; $2,572 at Nissan Motor Co.; $1,682 at Toyota Motor Corp.; and $1,249 from Honda Motor Co.
Chrysler’s defense: the discounts were planned a long time ago, and it’s different money. But hey, if that is horseshit, who cares?
Using federal money to stimulate demand is a “way of priming the pump,” said Sheldon Sandler, chief executive officer of Bel Air Partners in Skillman, N.J., which provides financial services to dealers. “It may be unfair, but I’d rather see them use cash to support incentives and make cars affordable than use the cash to support legacy costs that won’t stimulate demand.”
“It’s better to sell cars and lose a little money than have them sit on the lot and not make any,” Sandler said. That’s because it is inventory that the dealer has already paid for.
Welcome to Bailout Nation, where automakers use your tax money to sell a car people wouldn’t otherwise buy at a discount—after taking their cut.
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@ GS650G 2. If a bridge loan falls in the forest and is not repaid what does it become? Hint: rhymes with tail out. If the company fails it is not a bailout it is a loss. The only way to get the loan back is for the company to succeed. If GM and Chrysler fail and take Ford down with them do you really think that Honda, Toyota and Hyundai are going to move all their manufacturing to the U.S. and give us jobs? With no domestic competition they won't need the PR. They will build the manufacturing plants somewhere with cheaper labor. 3. What about those poor bastards who bought a new pickup for 20 or 25 K last year and thought 5 - 10K off sticker was a good deal? Hint again: They just lost a lot of what we normally call equity. Too many people think that an automobile is an asset with equity. Actually it is a transportation expense. The resale value does not reflect the actual value of the vehicle but how much someone is willing to pay for it.
Mark45 : GM and Chrysler (especially Chrysler) will never succeed, in the normal business sense of the term (make a profit), at least without a bankruptcy of some sort-and probably not even after one. And how much somebody is willing to pay for something IS the actual value of an item.