US Automakers are done
It’s over for any of the big three. The huge sales declines posted recently, Kerkorian’s sell off of Ford stock, and a $25 Billion loan that has done little to prop up stock prices or seemingly influence the balance sheets of any of the automakers. The high cost of union employees, bankrupting pension programs and higher components and gas prices have virtually sealed the deal on any chance of a recovery.
In slumping economic times, especially those driven by credit, makes selling any high priced item particularly difficult. Sticker shock is the word of the year, it just isn’t feasible for most American’s to plop down another $25,000 on a new car. And all the while prices on used cars have risen considerably. The automotive industry relies on credit to feed it new car sales, very rarely are new cars sold for a lump sum cash payment. Car dealers make their money on selling financing, the few hundred to a thousand dollars is nothing compared to long term interest payments. Subprime debt is especially appealing, credit card rates on a “secured loan.” The problem is that these “secured loans” are backed by depreciating assets.
Without a complete nationalization of the automotive industry it seems almost obvious that the Big Three are in their dying days. At this point it will take nothing short of a complete bailout of the employee benefit programs and corporate debt to save the industry. With tightening credit limits it is close to impossible to borrow against a brand that is losing billions per year.
