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Thread: Why the $28 billion won't help

  1. #1
    Vulture of The Western World Eric's Avatar
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    Why the $28 billion won't help

    Ford just revealed that sales collapsed by a brain-freezing 40 percent during the final month of 2008. GM and Chrysler haven't said yet, but it's a good bet they did no better.

    This is - obviously - catastrophic. And, unsustainable.

    Even with another $15-28 billion (or twice that) in the kitty, The End is merely postponed, not avoided. Depending on whose numbers you accept, the U.S. auto industry is currently producing something like 3-4 million more cars each year than the market can absorb. As this is written, there is a vast fleet of brand-new but suddenly old 2008 model year cars and trucks sitting forlornly on dealership lots all around the country - very much like those misfit toys in the '70s-era kid's animated special, "The Year Without Christmas."

    No one wants them - yet each one represents a not-small chunk of capital losses that will have to be written down/off as the year progresses. And still they sit, zero percent financing notwithstanding. It will take giveaway pricing to clear the glutted inventory.

    And then there's the 2009 stuff. Which, likewise, will sit.

    What no one wants to discuss openly - the godawful secret of our toothless, debt-driven economy - is that people won't start buying cars again until they have the money to start buying cars again. Read that again, carefully - and note the choice of words: money. Not credit.

    Like a kid who carelessly touched a hot stove, most people are now - rightly - fearful of overextending themselves financially. What Congress - what the auto industry - can't see or won't admit is that it's no longer the product that's the problem. GM and Ford and Chrysler's cars are - generally - pretty good. Think about it. They sold just fine until everything began to fall apart in 2007. The problem was not the cars.

    The problem is that people can no longer afford the cars.

    This is why throwing billions at the industry to "re-tool" won't solve the crisis - unless billions are also thrown at the American people, in the form of massive tax breaks or rebates or outright fistfulls of dollars handed out to each an every one of us. And even then, it might not work. We'd probably just hoard the loot - or use it to pay down other debt.

    Once bitten, twice shy.

    Do you know why there are no new Duesenbergs anymore? It's not because Uncle Sam didn't pony up a lifeline. Or because Duesenberg built crappy cars.

    There are no Duesenbergs because after 1929, the market could not support Duesenberg any longer.

    Get that?

    It is no different today.

    Nationwide, real estate - the equity source for most working and middle class Americans - has lost anywhere from 10-40 percent of its value. It is not expected to recover for years. Yet this has been the primary well-source of disposable income (and credit) for most Americans. Now that' it's gone, where does the money come from to buy a new car?

    Answer: It doesn't.

    Unless incomes (buying power) rise to offset the losses in real estate, we are going to be living poorer - and buying less. That includes new cars most of all, since a new car is an indulgence that can be skipped for economy's sake. Keep Old Faithful another year - or buy a used car. That is what millions of Americans are going to do. Are doing.

    And it will be the death knell for the U.S. auto industry, at least as we have come to know it. Nothing is forever.

    Not even GM.

  2. #2
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    When everyone else zigs, I tend to zag. This may be the year I pick up a deal on a car. I have kept my credit rating and financial house in order sufficiently to take the risk. There are bargains to be had out there.

    The only thing that is holding me back is the idea of a car payment. I despise being in hawk to anyone, but price relief is a strong incentive that simply did not exist a few years ago.

    If people would have applied common sense to financial decisions, the mess we face wouldn't be nearly as bad.

    GM may not last nor will Chrysler. I am betting on Ford to come through. It seems as if they invested correctly.

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    All of that 'bail out' money will do no more than exacerbate the disaster, it will create inflation as much as it does anything else.

    In this time of fallen stock prices, dollars looked to be a pretty good hedge. Now they, too will be in the toilet along with real estate and equities.

  4. #4
    Vulture of The Western World Eric's Avatar
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    Quote Originally Posted by jdm124 View Post
    All of that 'bail out' money will do no more than exacerbate the disaster, it will create inflation as much as it does anything else.

    In this time of fallen stock prices, dollars looked to be a pretty good hedge. Now they, too will be in the toilet along with real estate and equities.
    Agree.

    There will be hell to pay when, six months from now, it's clear that throwing billions at this hasn't accomplished anything positive.

  5. #5
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    Nothing is going to help.

    Would you buy a car from a company about to go bankrupt? What about the warranty? What about spare parts? What about the extended warranties sold by the dealers (who are going to go bankrupt?)

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    Senior Member misterdecibel's Avatar
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    Deusenberg production didn't cease until 1937.

  7. #7
    Vulture of The Western World Eric's Avatar
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    Quote Originally Posted by dBrong View Post
    Nothing is going to help.

    Would you buy a car from a company about to go bankrupt? What about the warranty? What about spare parts? What about the extended warranties sold by the dealers (who are going to go bankrupt?)
    That part wouldn't dissuade me. There are countless defunct brands of cars for which one can still readily obtain parts. Also, within GM itself, there are brands like Pontiac that have been effectively defunct (stopped building their own unique engines, etc.) for decades yet things like oil filters, etc. are still commonly available on the aftermarket (non-GM replacement parts).

    The warranty issue is trickier, of course...

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