Sunday, January 11, 2009

Business As Usual in Detroit

Well, The Big Three in Detroit have gotten their bailout. Not as much as they came looking for with their hands out, but still the package is in the multi-billions. Let us not forget that the CEOs showed up in Gulfstreams. So for the mean time, they are living on borrowed money. GM and Chrysler have received $4bn each in emergency loans, and Ford has secured a $9bn credit line.

It is just not the economy that has brought them to their knees. The foreign car makers are living in the same environment. But the Big Three have functioned with an antiquated business plan that does not accommodate with the times and customer needs. In fact, to my shock and horror, during my precious football playoffs I have been inundated with commercials for trucks. This does not represent a new business model, revolutionary thinking, or restructuring.

It is business as usual.

Here’s a trend for you to contemplate: US consumers purchased 13.2 million new cars and trucks in 2008, down 18% from the year before. So why not continue following something that isn’t working? This seems to be the logic involved by saturating the airwaves with commercials for trucks, and more trucks. This is the business model that has brought their sales down nearly 24%, which incidentally are double the declines by Asian automakers. Their sales only declined by 12%.

The strategy indicates that Detroit’s policy is to bank on the loans as support for the second-half recovery, and pray that the economy improves or that there is an improvement of financial market conditions.

During only a couple of playoff games, a person will have had to view hundreds of commercials for the new Ford F-150. They are betting the farm on this truck (Who are these idiots?). They say the F-150 played a significant role in its fourth quarter market share gains. They even have the audacity to remind us that the F-150 line of pickups has been America’s best-selling trucks for 32 years in a row. So why not sell more of what got them into this mess?

In a Dodge truck ad they even brag that it gets 21 mpg on the highway. So much for meeting customer demands for better fuel economy.

Why am I so adamant that Detroit change the way they do business, instead of shoveling us the same old shit, year after year? Because, if the bankruptcy threatened automakers don’t pull through, as many as three million US jobs could disappear (according to the Independent Center for Automotive Research).

As for General Motors, their business plan is not changing either. They rely on lending to make their money. In fact their policy is to loosen their lending policy, after learning that the federal government would inject $6bn into Gm’s financing arm. Remember loose lending is what got the economy, in general, into such a pickle.

Even Chrysler Financial has applied to become an independent lending corporation. This would enable them to acquire more money to make car loans.

As I just mentioned, loose lending is what got our economy into this mess. So why not have GMAC lower the FICO score threshold for financing from 700 to 620? Guess what? This is just what they have done.

Tell me again what school, these economic wizards’s went to? My guess would be one from the Ivy League. Maybe we should start relying on State University educated people to make these decisions. These are the people who had to work their way through college, and have a sense of reality.

Oh, and if we are to implement looser lending, why not let the dealers in on the deal? Wait a minute—they have just jumped on the bandwagon. They are starting to finance used cars, because they can make money on interest points they don’t get from all-cash sales.