#OT# GM bankruptcy closer?

I don't see Obama letting GM go under, I think a new CEO will be appointed because it appears Rick is completely out of ideas

what is the tax break, 100% of the tax on the first $49500 or a percentage of that ? how much of a reduction is that on the overall cost of a new car ? your tax is less than we pay here in canada and even if there is no sales tax (about 15% federal and provincial - which varies) I doubt there will be much of a run on new cars- reason: too many people living on the margins, car loans much harder to get means far less who might like to take advantage of such a deal but few able. that's not going to help.

Sen. Grassley appears to be the only one that recognizes how we got into this corner in the first place, i.e. excessive and unsustainable levels of personal, corporate and governmental debt.

The average consumer needs more debt about as much as a drowning man needs an anchor. If one of the major underlying problems is the consumer can't make the payments now on their mortgage, student loans, credit cards and vehicles, just how does yet more debt, for stuff they don't need, help anyone in the long run and even the consumer in the short run?

IMNSHO Detroit's problem is not a lack of consumer credit but a sated/glutted market. As posted before there is now in excess of

1 [1.04] vehicles [cars or light trucks, not counting motorcycles/scooters] for every man, worman and child in the US including prisoners, neonates in the hospitals, and the elderly in the hospices and nursing homes. There are 100s of thousands more unregistered vehicles on the dealer lots.

Why should people go out and spend 25-50 thousand dollars [total costs with sales taxes, interest, and dealer prep] they don't have for something they don't need? The US is [was] a market driven economy AND THEIR AIN'T NO MARKET -- get over it.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

My nephew sells cars, there never was a shortage of money for auto loans. His dealership NEVER lost a sale because they couldn't get someone a loan.

When the crash occurred his dealership lost $500,000 one month, $200,000 the following month and now they are not losing. Dealerships failed because of low sales (income), insufficient cash reserves and an inability to repay and/or secure new business loans.

When Detroit blamed lack of consumer credit as one reason for their problems some consumers believed it which just made things worse by reducing foot traffic at dealerships. Reduced foot traffic means reduced sales.

Tom

------------- You need to be more specific. Was this money to floorplan more cars at a dealership, for the dealer's working capital, parts/equipment, or to finance a car purchase?

From what I can tell the banks have indeed tightened their lending standards, but why should someone with a low FICO score get a loan for a new car? This is not to say they should not have or don't need a car, but why does it have to be a *NEW* car? Although the interest rates are high, one of the "buy here, pay here" car lots will get the person mobile, and there are also the store front lenders/loan companies such as Household Finance.

What seems to have gone away is the nothing down, zero interest,

72 month new car financing for anyone that walked in the door, which appears to what got us in this mess in the first place.

FWIW -- with some digging I found out that 60% of the adults in the US have a FICO score of 700 or above, and this is the current new car cutoff point for captive finance [GMAC etc.] Banks generally require a little higher score. FICO scores are of benefit to the consumer as well as the lender, as these can help to prevent the consumer from getting in over their head.

We all need to learn to separate our wants from our needs.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

My wife bought a Subaru at the end of last month. There would have been no problem getting a loan. They did not care if she paid cash or got a loan. Incidently Subaru has increased sales.

Dan

Thought I was clear when I said they didn't lose any sales because they couldn't get someone a loan.

Consumer Credit to finance a car purchase.

That may well be. I shouldn't have used the word "never" since I haven't talked with him about it in more than a month. I should have said "up to the point where we last talked about it" he hadn't lost a sale because he couldn't get someone financed.

The good ole days when higher risk meant higher interest rates?

Tom

My Nephew's team sold 32 cars last weekend.

Tom

----------- This response was to a post 1 level up from TMT.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

....sorry.

GM reports over 800 000 vehicles in inventory at the end of jan 09- jeeze even if they unload half of that they would still have too much inventory to restart production ( not to mention, who would they then sell those cars to ?).

And this just in.

------------------- Cadwalader, Rothschild Advising U.S. on Automaker Restructuring

By Tiffany Kary

Feb. 6 (Bloomberg) -- A law firm with bankruptcy expertise, three capital-markets lawyers and an investment bank are advising the U.S. government on how to restructure General Motors Corp. and Chrysler LLC, two people involved in the work said.

The U.S. Treasury Department hired Cadwalader, Wickersham & Taft LLP to evaluate several restructuring scenarios, including a government-funded bankruptcy, the people said. Cadwalader, hired last month, is working with Sonnenschein, Nath & Rosenthal, a Chicago-based law firm with capital-markets experience, and Rothschild Inc., an investment bank, the people said.

A key question the Obama administration wants answered is whether the government?s $17.4 billion in loans to Chrysler and GM would be first in line for repayment, ahead of earlier lenders such as Citigroup Inc. and JPMorgan Chase & Co., the people said.

?They certainly need sound advice on the complicated area of bankruptcy and implications for the economy,? said Bruce Clark, an auto analyst at Moody?s Investors Services.

---------------

If you are concerned write your Congressmen in addition to positing here. You can access their web mail here FWIW -- here is an email I just sent. Feel free to use all or any part of it.

------------------- This is a sad day for American manufacturing, but the choice is losing GM/Chrysler now or losing GM/Chrysler AND Ford 6 months from now.

Congress is now in the very unenviable position of having to choose between having GM and Chrysler go under on March 1, with a good possibility that Ford will survive and prosper, versus having all three companies collapse in 6 to 9 months, after "investing" tens of billions of additional taxpayer dollars.

Even after a one-month+ closure of their production facilities, Chrysler still has over 6 months of unsold new vehicle inventory at their factories and their dealers. While exact data is not available, GM is in much the same condition, as indicated by visual inspection of the local GM dealerships crammed with unsold vehicles, including many high value trucks, Hummers and SUVs. I encourage you to have one of your staffers take a day and drive past the area new car dealers, and report back.

The Obama administration appears to be engaging in some vital contingency planning by having at a preliminary evaluation of the GM/Chrysler bankruptcy option performed by experienced professionals, and I urge your support of these efforts.

I caution that any attempted chapter 11 reorganization, will most likely involve considerable additional taxpayer funding, for example DIP [Debtor In Possession] financing. Such reorganization will be useless, as there is simply too much domestic production capacity available, the existing management/organizational culture at GM/Chrysler will not accept the required changes, AND CONTINUED TAXPAYER SUBSIDIZED VEHICLE PRODUCTION BY GM/CHRYSLER WILL SIMPLY DRIVE FORD OUT OF BUSINESS. Therefore immediate Chapter 7 liquidation of GM and Chrysler is the only viable option, if Ford is to have any chance of survival.

The taxpayer funds that would be wasted attempting to rejuvenate/regenerate GM/Chrysler will be far better spent on assistance for their displaced workers, and even more importantly on their suppliers, many of whom are involuntary GM/Chrysler creditors, as these also supply critical components to the other viable vehicle companies in the US.

Please discuss the critical need for immediate action to impose Chapter 7 liquidation on GM/Chrysler with your colleagues, ASAP after the submission of their "plans" on Feb 17. If it would be helpful, please feel free to forward this email.

---------------

If you work in the Automotive industry, good luck.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

it's a huge idle capacity...and a larger footprint in the na economy at stake. the consequences of killing the saturn ev1 ten years ago might be comparible to the nazis developing the bomb first: we are too late with alternative technology to shift the production over at this critical juncture. house of cards.

That had nothing to do with it George. Zero.

I'll buy that.

JC

---------- Please enlighten us.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

Again?

JC

==================== Good to see you back. Can you share the good news? ;-(

As Europe is having the same kinds of problems as the US, and except UK & Iceland did not deregulate, but did go on their own huge credit/debt binge, this appears to be the key factor [other than greed].

Even with deregulation in the US, without the huge sums of [debt] money sloshing through the system [and spilling over a little from time to time into the CEOs pockets], the size of the current crisis would most likely be manageably, something on the order of another S&L debacle.

What most people in finance seem to have forgotten is that leverage multiplies "(profits)" [i.e. losses] just as much as it does "profits," and if you are a bank/quisi bank with 100X leverage, you are not "doubled down," you are "all in," and have bet the ranch using the stockholders' [and increasingly the taxpayers'] money.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

It'll get them into the Toyota/Honda showrooms.

George, at its bottom, this is the same thing we learned in 1929: Highly leveraged finance is inherently unstable. Our entire financial system became hooked on 30:1 leverage. Greed or not, you couldn't compete leveraging your capital at 10:1 if all of your competitors are at 30:1, if there is no downturn. And they were able to ride that 30:1 pony for quite a long time. How often, for example, does a general, nationwide decline in house prices occur? Even the most ethical of financial managers were in a bind because they could *not* operate with pump-gas virtue when they were getting killed by competition that ran on nitromethane.

Of course, if there *is* a downturn, and you survive it because your leverage ratio is much lower than your competition, everyone thinks you're a genius. Until the downturn, though, you looked like a dufus who was throwing money away.

And you were. Upside dufus, downside genius.

Greed is a given and it is forever. We had a stable financial system for years NOT because there weren't greedy people working in the business, but rather because regulations, the state of technology, and other factors made greed less able to run amok. When this financial system is re-stabilized and the industry is chastened, the greed won't go away. It will start looking for new opportunities the moment the dust clears. In fact, there are a lot of greedy ghouls out there now, just waiting for the collapse of more big companies so they can collect on their short sales. Greed works on the downside as well as on the upside, given the financial instruments, and lack of regulation, that allow it to run wild.

If we don't rein in the greed with better regulation and oversight, they'll just take us for another ride.

-- Ed Huntress