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Wall Street Credit Crash Threatens To Tank U.S. Auto Industry
DETROIT -- First it was the subprime mortgage crisis, followed by the gasoline price spike. Now it's the collapse of Wall Street and the unavailability of auto loans for consumers. What does it mean for Detroit automakers? "A Doomsday scenario that no one in Detroit -- or the rest of the country for that matter -- is prepared for," automotive journalist Peter M. De Lorenzo told OffTheBus.
In September, auto industry sales dropped 26.6 percent compared to a year ago. Industry analyst Jess Toprak told the New York Times that sales are likely to be even worse in October.
Has the credit crunch siphoned off what fuel was left in the auto industry's tank? Speaking from the Paris Auto Show, De Lorenzo told OffTheBus, "If people can't get loans to buy cars or trucks, then it's Game Over for Detroit. Not Good can't even begin to describe it. We'll go from bad, to worse, to grim, to inconsolable."
The credit crunch is starting to bite, although the impact is uneven. In Maryland, auto dealership sales manager Dewayne Noble told says banks were tight last month. "And they're even tighter this week, especially for trucks. Banks no longer are lending 110 percent on trucks. Now it's just 90 percent of invoice. Most customers find that almost impossible to do."
However in Virginia, auto dealership sales manager Tom Mackey said, "So far banks haven't made it more difficult for our customers to get a loan, but it's too soon to tell if the Wall Street bailout will tighten up credit."
The money crunch has led most car makers and financial companies to pull back significantly on leasing, too, "which is cutting into sales for luxury brands," General Motors news director Tom Wilkinson told OffTheBus. "The drying up of home equity loans is having an impact as well."
"I hope it gets better fast, or you're going to see dealerships across the country shutting down a month or two from now," said Noble.
So far this year, nearly 600 auto dealerships have closed due to the credit squeeze.
The largest Chevy dealer group in the U.S. said in recent bankruptcy filings that the reluctance of lenders to extend credit to customers contributed to a "financial liquidity crisis" that led to the chain's demise. Nevertheless, some industry experts believe fewer dealers may ultimately benefit Detroit's Big Three, who have been working for years to reduce the number of dealers peddling domestic brands.
At the Paris Auto Show taking place now through Oct. 19 at the Mondiale de l'Expo, Ford is exhibiting a strong line-up that includes an all-new version of its popular European mini car, the Ka. GM is displaying its first-ever global compact car -- the 2011 Chevy Cruze -- and introducing Europe to the Volt, the electric-motor vehicle that GM hopes will reverse its fortunes. Chrysler is showcasing a 25th anniversary edition of the Grand Voyager minivan with tweaks to the turbo-diesel engine to reduce emissions.
Excitement over new vehicles is tempered by fear of not surviving until 2010.
Of course the industry had problems long before the Wall Street crisis. "Expensive healthcare premiums and our unwillingness to deal with the realities of a globally competitive environment got us to this point," De Lorenzo said. "And now as a country, we've abandoned our commitment to manufacture things for ourselves. The domestic auto industry is a "canary in the coal mine" for American manufacturing in general."
Wilkinson prefers to think of auto manufacturing as a "badger" refusing to be dragged out of its den. "Most other heavy manufacturing has already fled the U.S. for cheaper lands. Steel, appliances, electronics, ship building -- most have moved off-shore. In contrast, GM still assembles most of its vehicles in the regions where it sells them."
De Lorenzo, who spent the day roaming the Mondiale de l'Expo, said "People here still think Detroit's problems are distant. But make no mistake, if the Detroit automakers don't make it, it WILL have a big impact in Europe." Already key markets in western Europe are slowing down. Even Russia -- which was poised to overtake Germany as the single largest car market in Europe this year -- is feeling the pinch.
"The other strong vibe in Paris is the green marketing initiative," said De Lorenzo. "Every manufacturer has put a bold "green" promise out front, except for the luxury Italian automakers who still believe beautiful women standing next to their cars is the best way to sell vehicles."
Last week the U.S. House of Representatives approved a $25 billion direct loan program for automakers who need more capital for new technologies, so they can produce plug-in hybrid cars and other more fuel-efficient vehicles.
At least auto industry woes can't be blamed on executive pay. The car biz is no place to get rich according to Forbes, who ranks GM Chairman and CEO Rick Wagoner #433 in CEO compensation. "The reality is that few people stay in the car business unless they really love it," said Wilkinson. "The hours are long, the pressure is intense, and most car companies are headquartered in garden spots like Detroit, Tokyo, and Stuttgart."
Will bank credit become available fast enough to help automakers dodge Doomsday?
It's anybody's guess, but this much is certain: cleaning up the mess if the Detroit Three Automakers fail will be far more expensive than helping them now. "Every job lost on Wall Street impacts two-to-three jobs on the outside. By comparison, every job lost at an auto plant impacts nearly 10 jobs on the outside," said David Cole, chairman of the Ann Arbor-based Center for Automotive Research. Cole told OffTheBus that problems in the auto industry "cascade through the overall economy in a huge way. We don't want to know what happens if the domestic auto industry gets away from us."
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My car's paid for and I'm hanging on to it until it literally falls apart! I think a lot of Americans who really need a car right now have to be looking at used, at least until there are signs the market is turning around.
If GM would hire me I will increase their sales by 10% over the next 12 months.
LibbyLoon -- Please keep in mind that in a market economy, companies build what people want to buy, or they go out of business. Very high fuel taxes have shaped the European fleet over the years. Americans have made it very clear that is not a solution they will tolerate. Rapid changes in fuel prices are tough on everyone, including carmakers, which can't retool overnight. We as a society have chosen freely floating fuel prices. Now we are dealing with the consequences.
Here's the way I see it Tom (as a civilian and not a Motor City Insider like yourself...)
Americans clearly want to buy the big trucks, vans, SUVs as our nation is large and we like taking the family on road trips.
That said, if nat gas prices would coss less than imported gasoline, as it's been indicated by T. Boone & the nat gas companies who want to convert...wouldn't that make nat gas a viable way to continue to sell GMCs and Explorers? If you can fill up your SUV for $2 a gallon on nat gas, that would be acceptable enough for people to buy bigger rides.
Instead of Ford & GM overhauling the entire fleet of vehicles to be smaller and more fuel efficient to keep up with the times...why not just convert their engines to nat gas so it takes us back to the fill-up prices of five years ago, which might make people more inclined to continue to buy the American auto makers' bread-and-butter vehicles?
If something new is on the horizon in the auto industry, it would be nice to see the American automakers get there first for a change. In the public's mind, the foreign automakers have cornered the market on innovation.
we will be buying either German cars or Chinese bicycles, let us see how the economy turns out.
If you look at third-party sources on the web -- Consumer Reports, Edmund's, J.D. Power, etc. -- it is pretty clear that GM has closed the gap on quality, reliability, value. etc. And our relatively strong sales during a really lousy 2008 give us reason to believe we really have turned the corner.
For the pessimists out there -- what would you have GM, Ford and Chrysler do? Give up? Turn off the lights on our offices and factories here? If you think American industry should just throw in the towel, where do you expect your grandkids to work?
I can assure you, that's not our thinking here it in Detroit. We are competing hard for every sale (just like our overseas rivals) and we expect to be around for a long time.
See Diane Tucker's Profile
Automotive journalist Peter De Lorenzo agrees with Tom Wilkinson: "GM, Ford and Chrysler have been doing many things right for several years now, but they're finding it difficult to gain the American consumer's consideration due to past transgressions."
I wonder...what's it going to take?
How about some better looking cars ? I mean really. Would you rather drive a Chevy Malibu or a Nissan Altima. Both similar in price. You have to drive an ugly car to get affordability ? The only car that Chevy makes is the Vette - that isn't ugly.
GM and Chrysler scared me away too many times. You know something is wrong when the Service Manager and I are on a First name basis. Buick has proved to be a great car, but what is entry level price of a Buick?
Ford and GM make some of the best cars in Europe and Asia and they are able to turn profits there. They're doing so with some hip, smaller, eco-friendly cars and their image in the US is basically a 180 of that with their big Explorers and F-150s and GMCs, etc.
But I don't think all is hopeless in the US. If America is as serious as it sounds like we are about getting off foreign oil, the AMERICAN companies should come in and say, "As AMERICAN companies, we will be the pioneers in getting our fellow AMERICANS off foreign oil." Play the nationalism card if you have to, but more importantly, convert your engines to natural gas and figure out a way for gas stations across America to offer CNG too.
I will be buying a car in the next 18-24 months and the first company that can sell me a nat gas ride and filling it up is practical I will buy it. I don't care if it's a GM or a Delorean.
this is rather bizarre, as remember we now have BMW, Toyota and Accord plants in the US... I don't know how many employees, but they do not have the overhead in Executive Compensation, Benefits and Expenses that the Executive Management at the Big Three do.... (Retirees are also an issue but this is because of the runaway drug prices and healthcare prices) Heck we should all be going to Canada for drugs and healthcare....
Too bad it took a near-death experience to get the domestic auto industry to straighten out its labor problems, and get the quality of its products up to par with the imports. Ford, GM and Chrysler are going to have to make their comeback one customer at a time. Ironically, they are doing all right in markets like China, Russia and Europe"against the Toyotas, Nissans, Hondas and VWs--so it"s not beyond the realm of possibility they can do it in the U.S.A. But they are going to have to sell better stuff in North America. For example, the Ford Focus in Europe is a much better car than the Focus they sell here. Why can"t they just build the Euro-Focus here?
Has anybody checked to see what happened in the UK, England, when their automobile assembly businesses died? Did the displaced workers ever re-enter the rolls of the working? Were they reduntant, unemployed workers till they were old enough to collect their pensions?
The US auto industry started dying in 1958 when the gas hogs new models didn't sell. People started buying Japanese cars & kept buying VW bugs. The foreign cars didn't fall apart as you drove it off the dealers lot. The foreign car dealers could repair their cars. American car dealers still couldn't repair American cars. The excuses American dealers offered for not being able to repair a car after 12 trips to their trained technicians still left you a car that didn't run were the same year after year. American cars are still poorly assembled & unreliable. $4.00 a gallon gas was the golpe de gracia, coup de gras, for the big 3.
Just think .........This is right up GM's alley for sure. Hey if you can't beat the foriegn car's, become one. Fire all your American workers, close up shop, move manufacturing to China ( where they already have stakes ), and presto. You are now an Asian import for the USA. Cheap labor means big profits. Just remember GM, go easy on all the lead in the paint and the parts huh !
It"s only been 35 years since the first oil shock in 1973.
But think about it, oil has never been renewable and gas has never been renewable either and then we have the draining of the aquifers and the fact that our culture is sustaining 100 million cattle at any one time (resourse intensive both on inputs and outputs)..
This is worse than Rachel Carson's SILENT SPRING....So we really need Al Franken to be able to communicate about all of this in his inimitable way (I adore his humor and the idea that he has done the Soldier Tours) and for him to say this stuff in such a way that we can dialogue and trouble shoot... Our children need REAL FOOD in the schools, we should all have been disgusted when they made Ketchup a vegetable ( A FRIGGING VEGETABLE)
My vote is crappy gas guzzling cars and horrible repair service has more to do with it than wall st
American cars threatens to tank the US auto industry
As a swede i lost compassion with american car industry when they bought up SAAB and VOLVO and changed those brands from being easy to repair and cheap machines for the working class to expensive luxury cars.
The car industry complain that ppl cant get any credits to buy new cars i get it, the thing is it is the whole credit based economy that is the fault we are where we are today. No one buys a thing with cash they buy stuff with borrowed money they dont pay back for they borrow money to pay the loans. It was just a time before all would crash down.
This goes for all ppl rich or poor, and the real bandits are those in the top of this giant pyramid game. Ppl now have total debt that is bigger then all money in the world and that is a big problem.
I feel sorry for the auto industry's workers and those families. They are the victims here, but the auto industry it self could have foreseen this years ago. I mean euro news papers started talk about the upcomming crash around 6 years ago so ppl know it was comming, why wasnt they better prepered then?
Well, a few years ago, many foreign car makers wanted to enter into the marked of American style gas-guzzling SUVs. So the erroroneous perception that this hype will go on forever was quite widespread. Foreign car makers are less exposed than American car makers because they mainly produce cars for a different environment (higher taxes on gasoline, car lengths for parking or power).
What might have brought the industry down in reality is its lack of export-orientedness. They produced mainly for the home market, which is a rather homogenous market environment and ended with a monoculture of very similar car types. Which proved to be very vulnerable to an increase of gasoline prices and a drying up of credit.
The 2007 agreement with the UAW goes a long way toward reducing the industry's legacy cost burden, which will help keep a significant number of unionized auto jobs here in the U.S. Long term, that has to be a good thing for both unionized workers and the American economy as a whole.
It is worth noting that, despite huge financial strains, the U.S. auto companies haven't evaporated overnight the way some financial services companies have. That seems to me like an inherent advantage of a manufacturing industry that makes products that ordinary people need -- it has a solid foundation. It is a good reason for Americans to care about a home-grown auto industry, especially since we have blithely let most of our other manufacturing industries migrate overseas.
A society can't live on financial services and entertainment alone...
As for the loans, there is every reason to expect that the taxpayers will get their $25 billion, plus interest, back.
Thanks, Tom.
Your promise of repayment and a buck sixty will get me a cup of coffee at Mickey D's.
As someone who has always bought American the U.S. auto industry is not being truthful. I can still get a car loan through my credit union at a very low interest rate. The two loans I have with them are 4 percent.
So, why aren't Americans not buying cars? Gasoline prices which fueled inflation. When you double the price of gasoline it limits your purchasing power. In my household which I think is alot like most households paying for gasoline has eaten into not just my disposable income but my savings. Not only do I pay more for gasoline but I pay more for everything else because they are passing their increased costs onto me, the consumer.
What I fear is Americans have such a short memory if prices drop due to a recession they will lose all interest in alternative energy and electric autos.
The other thing hurting the automakers is legacy cost, paying the retirements and medical care of all those retirees, but that's another story.
See Diane Tucker's Profile
Auto experts told me they agree with you -- high gasoline prices have done more to create interest in fuel-efficient vehicles than CAFE Standards ever could. Here's the link:
http://www.huffingtonpost.com/diane-tucker/suddenly-obamas-auto-poli_b_128349.html
The markets at work. But don't worry, the price of gasoline is not going to fall back to previous levels only because American consumers cannot pay for it anymore. Their lack of demand will make a dent, that's for sure, but there is an increasing number of others willing and able to pay.
This will be very good for the environment.
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