I was kust watching Pres. obama’s declaration of the GM bankrutcy-and it struck me, that the 50 year old busines model isn’t going to wrk anymore. For years, Americans have parted with a huge amount of cash, buying and financing automobile purchases. it is a crazy game-you spend $20-$30K on a vehicle that depreciated to nothing in 10 years. The amount of money we spend on these things is obscene. Yet, if we stop this circus, we go into a depressin.
Meanwhile, the auto industry is such a huge force in the economy (it accounts for a large proportion of thesteel, plastics, and electronics produced in this country) that we cannot seem to move away from it.
But now, i think people are realizing just what a bad “investment” a new car is-you can esily keep a car (used) for 10-12 years.
So, is this sea change a bad omen for Detroit?
What sea change? No thinking person has seen their car as an investment for the past sixty years - businesses and households alike have regarded cars as a cost to be managed. And if that cost could be financed, that’s fine - most people are on board with financing large purchases.
Being upside down on a car is only a problem if you plan to replace that car within just a couple of years. I’ll be in the market soon to replace a car, but that’s a nine-year-old Toyota with 150,000 miles on it. It has been paid off for almost six years, and the interest rate on it was low to begin with. That wasn’t a big problem.
My problem with bailing out the auto makers has been that I almost feel like we’re subsidizing the CD manufacturers on the eve of the iPod’s release. It’ll be with changes, but kicking and screaming, much like the record and movie industry. Actually, the music and movie industry might be the better analogy.
People aren’t buying cars because of the credit crunch and the economy, not because there is something else new and better.
Are you referring to GM or the entire auto industry? GMs business model failed but the auto industry in general is doing fine. It just slowed overall because the economy slowed overall. Toyota, Honda, Volkswagen, and even Ford (as far as I know) are doing okay.
And most people know and have know for years that cars depreciate over time and that you can make one last 10-12 years. That won’t stop people from buying shiny new ones though.
Jobs are disappearing. The potential market is smaller. New cars are expensive and financing is tougher to obtain. I see little hope. Gas prices are climbing rapidly. Will it go high enough to drive people into seeking a smaller car with good mileage? The new wage structure has put many people out of the new car market.
I’m looking at the new cars, and they essentially cost about what cars cost ten years ago but offer a lot more.
You can get a new Nissan or Hyundai for about $10,000, a Chevy or Kia for a couple grand more than that. $16,000 can get you into a Honda or a Ford. These prices aren’t unreasonable on the low end of cars, and the used car market is strong.
Are you under the impression that people won’t want cars in the future? That we are moving away from the idea of personal transport…in the US??
I don’t really think that you can look at Chrysler or GM (to a lesser extent) and then draw sweeping conclusion from them. Right now we are in a recession. Couple that with the credit problems and right now (at this moment) people are buying less cars (and less of a lot of other things). This has caught a few car manufacturers short…but the industry as a whole is still quite viable. And, once the economy starts picking up I can practically guarantee you that car sales will pick up again too.
As others have pointed out, cars were almost never thought of as an ‘investment’. They are generally considered necessary for commuting, and desirable for personal transport for pleasure. People want new one’s because…well, they do. They don’t buy new cars as an investment but because they WANT them. Myself, I think it’s silly to buy a new car…that’s why all of my vehicles were previously owned. But that’s just me.
Not unless you think that the changing of the tides is a ‘sea change’ Right now the tide is simply going out…wait a bit and it will change again. And when it does you’ll see that car sales will start to go back up again.
-XT
You may be waiting a while for the “tide to come back in again,” xtisme. Frankly, this bailout nonsense is going to increase rather than decrease economic troubles, for a whole mess of reasons. Moreover, as the chief owners of the new GM, the US government and the UAW will be fiddling with it, and I highly doubt to any good effect.
I’m not holding my breath. I’m simply confident that things will turn around…eventually. And when they do, people will still want to buy new cars.
-XT
Sure. They might not want to buy Chryslers or Chevys, but that’s life sometimes.
I agree. Ford did not accept government money and they can react to the market as they see fit. The new CAFE standards do not kick in for 7 years. Ford can make cars that the customer wants and adapt over time to the market.
GM and Chysler are going to be told what the business model should be. Little cars that are not practical for many people. Young moms love their SUVs. Try putting 3 little kids in a small car. Say 2 need car seats. And the gear that goes with them. Are you going to want to stuff all that in a little sedan? This is lost on the urbanites and greenies. People west of the Mississippi understand. Gas mileage isn’t everything.
I really don’t think GM can ever go private again. Vega anyone?
“Go! Go! Adobe! It’s the cute little car made out of clay…”
I searched for about on hour for this SNL commercial. If anyone can find it, please post!
Maybe this will be the new GM car after all!
I dunno if video is available online, but here’s a transcript.
HA! I love it when they mention the spare change you save and you see the driver just wedging in the coins on the dashboard!
In any other industry, if the demand for a product goes down, the weakest, least efficient manufacturers go out of business or start making other things. This culls the herd of production, leaving the strongest behind to fill the gap. So overall production goes down, but the entire industry doesn’t become sick.
What the Obama administration has done is short-circuit this process by propping up the weakest auto manufacturers. Every sale GM and Chrysler make now comes at the expense of Ford, Toyota, Nissan, Honda, and the rest. The result could be the failure of an auto company that is actually better at making cars than is GM or Chrysler. The whole industry remains sick because there is a glut of production.
There are currently 300,000 vehicles sitting on new car lots across the country. That’s a huge backlog. Too many cars are being produced. If GM and Chrysler were allowed to fail, then fewer cars would be made, but sales would go up for the other manufacturers, making them stronger.
This is why the bailout was such a bad idea in the first place. But now that government has a stake in GM, it will not be allowed to fail. It now has access to a pool of capital that no other car manufacturers has, giving it a competitive advantage over companies that are technically better and which have been managed more efficiently. This is not only unfair, it’s unhealthy for the industry.
And then there’s bias. You can bet that whenever government regulators are considering new auto rules, there will be pressure on them to make sure that the rules don’t ‘punish’ General Motors. It could easily become the case that any advantage that GM has in production will be magnified by a government law. If GM happens to make the cleanest engine, suddenly there will be a new rule mandating emission limits that are cheaper for GM to reach than others. If GM has the most efficient airbag production line, we could see a greater mandate for airbags, etc. The temptation for government to tune the market in favor of GM will be hard to resist.
Then there’s the next phase - trade complaints. How long will it be before Toyota or Honda file complaints with the WTO over government subsidy of GM? What does Ford do if it perceives the rules are being changed to favor the government’s auto company?
This bailout was a very bad idea, and it’s going to get worse.
You are wise Sam, Sam wise.
I am wondering what the government will do if people just stop buying GM cars? Are all of the government fleets in the country going to be ‘encouraged’ to buy GM? What if the customers don’t show up to buy the new little cars?
I like to buy American, and I have a GM hot rod in the garage that I will never get rid of, but if I were in the market for a small car I’m probably going Toyota. Because that is what Toyota does well.
But I am not a small car guy. My next car will probably be a used Corvette which I can buy for less than the price of a new Prius. Or Og forbid, a Mustang, because Ford retained it’s soul.
I think GM just sold their soul and would have been a better car company to just collapse and come back in whatever small way that is possible.
I’m a GM car guy and I will stay one, but it is unlikely that I will ever buy another ‘new’ GM.
Ford’s public favorability rating has jumped from 38% to over 60%, because they chose not to accept government money.
Ford is now making some of the safest, most reliable vehicles in the world.
Ford’s hybrid drivetrain in the Escape and the Fusion is at least as good as Toyota’s, and maybe better.
Ford’s Sync system is a killer feature that’s catching the attention of a lot of young buyers.
Ford’s new engines and transmissions are as fuel efficient as anyone’s.
And yet, Ford has been punished severely. GM received 50 billion dollars that Ford doesn’t have. GM has the backing of the federal government. GM should have failed, and the bulk of its sales would have gone to Ford as the other major domestic auto maker.
Oh, and what has GM done with its bailout money? GMAC took 10 billion of it and used it to lower the credit ratings required for customers to buy its cars, and to offer better financial incentives for GM vehicles than Ford can offer for Ford vehicles.
Ford should be earning rewards in the marketplace right now for out-competing GM and producing a better product. Instead, it’s getting kicked in the teeth, and taxpayers are paying for the kicking.
This is simply not right.
Perhaps. But, on the other hand, there’s some hope that Government Motors won’t make it anyhow. No matter how unfair the compeition (and the blatant vote-buying from Obama to the UAW is disgusting), GM is still kneecapped. It’s shedding dealer, and customers are going to be real nervous about buying from a shaky company. Who knows whether you will be able to get parts or service in the future?
Even the government can only hide this so much, and no amount of money will ease the underlying problems. That $50 billion was wasted, so ultimately it’s impact on Ford will be limited in the long run. Ford will have a rough time now, but I think they’ll survive. They aren’t the biggest or the richest car company, but they are probably the toughest. They’ve been through worse.