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Could The $700 Billion Bailout Failure By Congress Doom The US Automakers?

Agent009 submitted on 9/30/2008 Official Bell & Ross Timestamp: 12:14:22 PM

30 user comments | Category: Misc News | Source: | SOURCE: www.cnbc.com

Tag Link: economy

Whether or not you agree with Congress voting down the $700 billion bailout, one thing is clear, this is bad news for automakers and auto dealers.

That's not a Republican view or a Democrat view. It's reality. And for those in the business these are troubling days. Why? More than almost any industry, autos depend on credit. Credit keeps auto plants humming, suppliers shipping parts just in time, and buyers coming into showrooms. It is truly the oil that keeps the industry's engine running. And now that it's becoming tighter, we'll start to see the impact of Congress' inaction hit home.

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Could The $700 Billion Bailout Failure By Congress Doom The US Automakers?

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"If everything seems under control, you're just not going fast enough."
— Agent009 (View Profile)

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The best thing Congress could do for the struggling US automakers would be to repeal the most recently updated CAFE standards.
— HSCenterconsole (View Profile)

Posted on 9/30/2008 12:36:09 PM | reply to this comment | Votes: -6

Bimmerfan, thanks for the condescending response.

Instead of forcing the carmakers to meet fuel economy standards, we should let the free markets do this. Gas prices are high, so people will want more fuel efficient vehicles now. Detroit has long produced vehicles that consumers didn't want trying to meet these standards.

This WSJ piece is worth reading and is far more articulate than my post: http://online.wsj.com/article/SB122100316976917063.html
— HSCenterconsole (View Profile)

Posted on 9/30/2008 2:19:20 PM | | Votes: 5

Going down the toilet?

They said the same thing in the 30's, oh yeah and the 60's, 70's, late 80's, early 2000-2001 yet here we are.

It's getting old........ the markets have its inevitable ups/downs, yet when it goes down everyone thinks it's the end of the world. Everyone elses ignorance and fear is only an opportunity for the astute.

You do know that most Asian markets are down, close to or more than, 50% right? Talk about going down the toilet!!!!!

Till some other country steps up(Germany? UK, China? ....France? lol), America will still be the Economic and Military super power for the foreseeable future.

Things do have to change... don't get me wrong, tax code, cap gains elimination etc. but things will work out.
— kablaam (View Profile)

Posted on 9/30/2008 2:23:11 PM | | Votes: 3

bimmerfan25-

Don't be such a chicken little.

You underestimate the USA.

BTW, we have been bashing the hell out of Bin Laden and his bearded goats ever since 9/11.
— EL34 (View Profile)

Posted on 10/1/2008 2:50:33 AM | | Votes: 4

Why would they be doomed, federal government already cut a check for $25billion to the big three. Did you miss all the whining from the German Automotive Industry when it happened couple of days ago?
— sector (View Profile)

Posted on 9/30/2008 12:46:04 PM | reply to this comment | Votes: -5

auto001- Hard to sell all of those shiny new cars when the buyers can't find a lender that is solvent..

No cash to finance equals no new car sales.
— Agent009 (View Profile)

Posted on 9/30/2008 1:16:07 PM | | Votes: 6

yes but the inability for individuals to make capital purchases applies to all manufacturers, not just for US Autos. If they can't sell as much as the competition, it just means people don't want their products as much as others.
— sector (View Profile)

Posted on 9/30/2008 1:33:12 PM | | Votes: 0

That is true for sure. But reality is that most people pay their debts. But the tight credit situation dictates a lot about who can qualify for what.

For example:

One can own their own business run out of the home, and for 5 years average $200K while showing increased income for all of those years. They have excellent credit and have little revolving debt plus a great earnings to debt ratio. Now since the business is home based and you will have few tangible business assets (buildings, etc) so you will have to apply for a NINA loan for that house (no income no asset verification). They are now out of luck. That market has almost dried up entirely. Even though they did everything right and have been responsible.

Now you and your wife can work at average jobs, maintain average credit scores and have average debt. You will have a far greater chance of securing reasonable financing than the self employed entrepaneur listed above, even though he makes double what you do and has a better ability to pay.

Doesn’t always make sense.
— Agent009 (View Profile)

Posted on 9/30/2008 2:05:12 PM | | Votes: 4

How does your scenario relate to the auto industries' lending practices? The 1st individual that you describe would have no difficulty at all getting a car loan, even in this economic turmoil.
— golfer38 (View Profile)

Posted on 9/30/2008 2:38:32 PM | | Votes: 3

Good question:

Read this from today

Auto sales for September may the worst in a decade. Automakers report September sales results on Wednesday, Oct. 1, and almost no one in the industry expects good news. A scan of news reports today indicates that tight credit markets and consumer uncertainty are expected to crush an already flat auto market. Edmunds.com predicts new-car sales to drop 19.7 percent compared with September 2007.

So tight credit means a lot more people who could qualify in the past can no longer at a reasonable rate if at all.

Also if you leased.... hang it up... almost 50% of the programs are gone out there. So good luck there, if you were leasing a BMW 3 series and living large for your last car, you may be driving a Hyundai Sonata for the same price this year.

The $700B fund package is for liquidity in the market, NOT to bail out consumers for debts. Without liquidity there are no loans for anything, so big ticket sales go away.
— Agent009 (View Profile)

Posted on 9/30/2008 3:29:46 PM | | Votes: 2

Agent 009, your info is off to some degree. I've been in the auto industry for over 19 yrs. Our numbers are off dramatically right now, but it has nothing to do with lending at this point. We simply do not have any traffic. No one is buying right now. By the way, leasing is only off for certain manufacturers, our line's lease to purchase ratio is nearly identical to the previous 2 years. There is a fine line between informing the people with facts, and panicing the people with excess gloom and doom.
— golfer38 (View Profile)

Posted on 9/30/2008 4:55:21 PM | | Votes: 2

hey double zero 9, good thing i dont lease eh? ; )
— KZ258 (View Profile)

Posted on 10/1/2008 9:22:42 AM | | Votes: 1

Pols suck. They are trying to bail out their friends on Wall Street while common folks are suffering. No, nothing will happen unless pols get involved. The system will need time to correct itself after some reckless borrowings but it will be OK IF pols don't get greedy. Pols are thinking they can grab more power/money by posing for cameras so the stoopid grandstandings will go on til election day.
— BMWsuk (View Profile)

Posted on 9/30/2008 1:06:32 PM | reply to this comment | Votes: 0

Anyone who says this is a wall street bail out is an IDIOT. Agent 009 doesnt even comment on how this effects every retailer/food store or anything with an inventory. The manufactories/supplies/retailers all rely on credit lines. Wait until this comes to a grinding halt and guess what comes next...NO PAY CHECKS for the common folk. Those (pay checks) rely on sales and when sales arent there, they get a credit line to cover those cost based on existing invetories, credit worhtiness. America needs to get its head out of its ass and get credit flowing ASAP!
— Vantage (View Profile)

Posted on 9/30/2008 1:39:24 PM | reply to this comment | Votes: 2

Bottom line is, Wall Street finances Main Street, one could not exist without the other.

This class warfare between the "haves and have nots" is getting tedious.

Fact is, we should not have to buy all of these bad mortgages(sub-prime) if they weren't issued in the first place.

Look up CRA(Community Reinvestment Act):
The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound banking operations.

Also look up the left wing, "not for profit" group called ACORN(Obama once worked for). Its a mess and in the initial bail-out it included an earmark which enabled them to receive up to 20% of the funds.
— kablaam (View Profile)

Posted on 10/1/2008 3:45:52 PM | | Votes: 1

oh, I forgot to touch on when stores dont have enough CASH to replensih inventories they resort to CREDIT again...What happens when there is no credit..Invertories deminsh, sales decrease, people get laid off. Laid off people cant buy good as they did when they had a job, so now we start a snowball effect.
— Vantage (View Profile)

Posted on 9/30/2008 1:47:58 PM | reply to this comment | Votes: 1

The doom of the US Automakers pre-dates the financial scandal by at least 30 years.

I'd say that GM/FORD/CHRYSLER's problems started somewhere around 1973, during the original oil crisis. They botched their response to that crisis and they have botched their responses to every crisis since then.

They got lucky for a couple of years because Americans liked big pickups and SUV's for a time (which would not be viable any where else in the world, aside from the US).

Other than that, they are victims of their own incompetence - sort of like the Bush II administration (sorry couldn't resist).
— nybimmer (View Profile)

Posted on 9/30/2008 1:52:12 PM | reply to this comment | Votes: 7

nybimmer- I rummaged through a bunch of old high school things and found my papers for a brand new 1977 Malibu Classic ($6300 loaded). Stapled to it was a typed list of issues for the dealer to fix on the first visit.

There were 26 items on the list from too thin paint doors, to runs in the paint at the doorjambs. there were rattles in the dash and an odd knock when to ran over bumps in the road.

To say cars are better built now is an understatement.
— Agent009 (View Profile)

Posted on 9/30/2008 3:48:17 PM | | Votes: 3

How do you sell a car that becomes more difficult buy, afford gas, expensive, and breaks often. Sounds like a BMW and most U.S. brands.
Do what BMW has always done. BMW leases more than 60% of their cars, few people by them cash, so less than 35% are financed. As with all dealers the killer profit is made in the Service department in spite of the “4 year free maintenance”. With or without credit or economy crunch, leasing and financing will still be available.
Do what BMW did May 2008; BMW credit screening criteria has become more stringent, leases monthly payments and down payments have increased, and approach near zero% financing. For U.S. brands, employee discount sale will be around for a decade.
Bailout do not work, Japan tried to bailed out their economy meltdown in 2002, they spend 100 billion, made a little profit, but did not work for long they are in problems again the same happen with Sweden in 1992.
— topneuro (View Profile)

Posted on 9/30/2008 2:51:09 PM | reply to this comment | Votes: 0

How did you get from a Congress decision(subject of this thread)to a demented rant about BMW?!?

Just say NO to drugs...
— Star (View Profile)

Posted on 9/30/2008 7:47:13 PM | | Votes: 0

It's kind of their own fault.

I think people are just looking to point the finger at Congress.
— adamsaf723 (View Profile)

Posted on 9/30/2008 3:40:10 PM | reply to this comment | Votes: 1

Just a thought …..

I'm all for the bailout, but what about the normal American that's struggling these days. Instead of giving Wall Street 700 billion dollars, why not give each American household 1 million dollars to pay their mortgages and other debt off. This would cost a whole lot less than 700 billion dollars. Any excess funds from the 1 million dollars given to the household should be automatically deposited into a retirement accounts, no exceptions That way, mortgage debt (bad or good) is paid off (preventing foreclosures and stabilizing the real estate market) in addition to other debts. The failing banks get their money back on their bad investments and us Americans can go back to a semi-normal life.

If the government wants to step in, do it the right way and make sure everyone benefits, not just Wall Street…..

The hard part will be to prevent this crap happening again. That my friends is another story…..
— cgmmny (View Profile)

Posted on 9/30/2008 3:55:39 PM | reply to this comment | Votes: -1

It equates to only $2,300 per person in the US.
— Agent009 (View Profile)

Posted on 9/30/2008 4:17:24 PM | | Votes: 2

you would have to restrict something like that to only tax payers, but I heard an interesting twist on that idea a few days ago...give everyone $250,000, tax it at their current tax rate (so some of the money goes right back to Uncle Sam), and then let people use that money to pay off debts. (credit/mortage) if the person doesn't have any debt, well then they can put that money back into the economy buying things for their family/house/entertainment, meanwhile paying sales tax on all of that, so in essence giving even more of it right back to uncle sam...biggest way to increase revenue is to cut, no SLASH taxes. Give me more spending money in my paycheck, and I will go out and spend it on nice things.

but in answer to the original questio: no this shouldn't hurt the auto industry, they just got $25 Billion to reinvest into their futures...but watch, they will still roll those costs into future pricing...
— GodfatherSHM (View Profile)

Posted on 9/30/2008 5:51:30 PM | | Votes: 1

How about making the bastards that ran these companies and banks into the ground, yet putting millions into their own pocket's responsible? Giving the banks and mortgage holders money that are already holding house in foreclosure is pure stupidity !! They get the house, and get their money from the government, then get to sell the house whenever they want, probably holding on to it until the real estate market get's better. Now they get paid twice!!!

They wanted to impeach Clinton for getting head, why not impeach bush for not using his?
— AMiodynski (View Profile)

Posted on 9/30/2008 4:51:01 PM | reply to this comment | Votes: 1

Agent009, if a borrower is making $200k a year and is reporting the income, they should have no problems applying for a home loan they can afford. In the past (and I've been in the consumer lending business for 25 years) a self-employed person who could not verify their income could always get a home loan, no income verification. Problem was they needed a 680 score and 20% verifiable down.

The mortgage market exploded for a variety of reasons. One of them is standards that had worked so well for so long went out the window, whether it was sub-prime credit or non-verifiable loans. The market now has no idea what's going to perform, so those folks are suffering the most.

The auto financing market has always been cyclical. Many of the sub-primes and mid-prime lenders over the last decade have either been running at 120% of capacity or have the brakes on their volume locked up like an old VW Beetle. This cycle will pass. What's hurting lenders is the larger losses incurred on trucks and SUVs.

Like the mortgage mess, there is more than one reason why auto sales are down. 1. The domestics don't have the product lines that will produce strong sales. 2. Many smart consumers, people who are concerned about their jobs, concerned about their budgets, are sitting on the sideline. 3. People who do want to buy are SO UPSIDE DOWN on their current car, it's rediculous. Saw a deal last week where the borrowers had $31k negative equity and wanted to finance $57k plus tax, tag, title on an 08 Ford Escape. An Escape. That negative equity is not going away.

There is no bailout needed for auto lenders. The best thing that can happen is for Congress to develop a sound plan that doesn't soak the US taxpayer and prevents the problems in the financial markets from hitting Main Street USA.

And for people who think the US Government ought to hand out $1 million to each household to payoff debt, don't you understand issues with hyperinflation, witness Brazil several times in the last decades, Zimbabwe now, and Germany during WWI?
— vogeygolf (View Profile)

Posted on 9/30/2008 6:24:13 PM | reply to this comment | Votes: 3

Excellent points - want to replace Hank Paulson and sort this thing out for us?
— nybimmer (View Profile)

Posted on 10/1/2008 4:16:17 PM | | Votes: 2

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Could The $700 Billion Bailout Failure By Congress Doom The US Automakers?

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