Tuesday, February 03, 2009

Woe is the Automakers

Lordy lordy lordy have GM and Chrysler ever funked up again.

It's hard to believe. But it's true. The latest culprits for the two most beleaguered automakers in the U.S.? Their own fucking finance arms.

That's right. Back in 2007 when buyout firm Cerberus Capital made the ominous decision to buy Chrysler from Germany's Daimler, Cerberus had the brilliant idea to split off Chrysler Financial, which had long been a part of Chrysler proper, to try to turn more profits from Chrysler Financial itself. This, after Chrysler Financial had spent years with its primary objective not to make a profit but rather to help Chrysler to make sales of its autos.

The result? Now the two separate companies have vastly divergent goals, and as a result they are now working against each other and hurting both companies as a direct result. No longer is Chrysler Financial working to help its former parent sell vehicles, but now instead the finance company is looking instead to straighten out its own bottom line, even if it means making things a heck of a lot harder for consumers to purchase Chrysler cars and trucks.

First, in the summer of 2008, Chrysler Financial stopped providing leases on Chrysler cars outright, eliminating a previously very popular method of individuals and companies obtaining Chrysler cars in response to the then growing credit crisis in the U.S. When that proved not to be enough to fend off ever-increasing credit woes, Chrysler Financial then moved from auto leases to auto loans, tightening its belt by significantly cutting back on the number of financings it allowed for purchases to buy Chrysler vehicles. In addition, Chrysler Financial has also been increasing the charges it levies on Chrysler dealers for vehicles that are remaining on the dealers' lots, making things even worse for dealers who are already struggling mightily amidst the worst recession for automakers in more than a generation, possibly many generations. Sickly, the story is the same for GM's longtime captive finance arm GMAC, which Cerberus also bought a controlling stake in back in April 2006, and who now also is making life difficult by severely restricting the number of auto loans it is providing to potential GM customers.

How bad have Chrysler Financial's and GMAC's actions hurt Chrysler's and GM's ability to move their cars and trucks in the U.S.? Check out these numbers: The largest chain of auto dealers in the U.S., AutoNation Inc., in December reported that it was able to secure only 22 auto loans for car buyers from Chrysler Financial, compared to December 2007, when AutoNation secured 823 auto loans from Chrysler Financial. The figures for GM are even worse, with AutoNation got all of 9 auto loans from GMAC in December 2008, compared to 1,527 loans in December 2007. So, one more time, the largest chain of auto dealers in America saw 2350 auto loans from Chrysler Financial and GMAC in December 2007, but just one year later, that number had dropped to a whopping 31. Now, surely some of that huge dropoff is as a result of falling demand for the two companies' cars as opposed to the unavailability of loans, but come on. We're in the midst of the worst recession since the Great Depression in this country, and the automakers in particular are just a hair away from bankruptcy declarations, and recently needed to take more than $13 billion in taxpayer money just to stay afloat through Q1 of 2009, and the finance arms of the two companies, which previously used to make as many loans as possible available to car buyers without regard to their own profitability, are now providing just 1.5% of the number of auto loans that they did just one year ago. What a joke.

Interestingly, Ford once again shows itself on this issue to be ahead of its two rivals, as that company made the strategic decision to keep control of its finance arm, Ford Motor Credit, and that decision has worked out well for Ford even as it too is faced with tightening credit standards across the board. AutoNation secured 1,235 loans from Ford Motor Credit in December 2008, down from 1,624 in December 2007, but not down anywhere near the magnitude seen with Chrysler and GM, both of whom no longer control their former finance companies.

Last December, after the Congress refused to extend the TARP bailout to the automakers, then president George W. Bush blinked in the standoff and personally fought to extend $13.4 billion to struggling GM and Chrysler, in a move widely understood to be just enough of a lifeline to keep the companies afloat for a few months. Many, myself included, criticized the president for essentially deciding simply to buy a few months until the two companies would surely need more public funds, but at a time when it would no longer be Bush's problem but rather incoming U.S. president Barack Obama's. And here we are. Hopefully the new administration will take a holistic view of the problems facing GM and Chrysler, including seeing all the decisions made (or not made) by these companies over the recent past that have now severely hurt their chances of successfully becoming profitable enterprises, rather than simply throwing more billions of dollars at them in the hopes that it will somehow change them overnight into viable long-term entities.

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Blogger Astin said...

Nice timing. GM numbers just came out and are down 50.8% YoY. Estimated was 39.3%... talk about overshooting the bad news.

They're so fucked. I still think Chrysler's in worse shape and will burn out quicker.

Ford is staying afloat largely on the fact they were forced to restructure a year or two early when they went down on their own accord.

But until the Detroit 3 dropkick the unions in the nuts, they're not fixing anything.

2:04 AM  
Blogger Julius_Goat said...

As someone from Michigan, I now look to the Detroit Lions for a ray of hope.

4:00 AM  
Blogger Chad C said...

Astin really hit the nail on the head. Fat ass union people destroyed the auto biz. These clowns get $30/hr and benefits, handcuffing the corporations from putting money into actually making a quality car.... Most people that work at wal-mart work harder than these union people.

5:07 AM  
Blogger Gmello said...

I think you're barking up the wrong tree here. It's not bad financing, it's bad product. Look at Toyota's decline as compared to GM's - not nearly as bad. Toyota's still moving 100,000 cars a month whereas Chevy's fallen from 150,000 to 75,000. Because Toyota has more cars that people want.

7:37 AM  
Blogger Chad C said...

Exactly, the car companies never had the capital to make better cars, or offer cars at a cheaper rate thanks to bastard fat ass union workers being way over paid to press a button 300 times per day....

12:08 PM  

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