Tuesday, May 12, 2009

Much has been said recently about the goings on at Chrysler and GM, none of which has been flattering or confidence inducing.
The battering of the principle of contract law by the administration would leave one to believe that only the foolish would invest
in the corporate bonds of these companies.  On the same train of thought what financial institution would lend money to these
corporations at any interest rate?  What good is a high, profitable rate if you cannot count on the administration keeping hands off.

It is also questionable just how good Obama was to the unions, after all  is said and done, with the unions owning 50% of
Chrysler they will be the ones making the decisions to lay off their own members, and deciding what plants to close.  The rank and
file will not be happy either way.

These however are the larger, out in front issues.  There are a couple of points worthy of discussion.  The first, which has been in
the back of my mind for several months and is important to the idea of whether or not these companies can survive.  If you will
recall, back in the summer of 2008 the Detroit automakers announced that they were terminating all in house leasing programs
because they have been losing millions of dollars each year leasing.  If I recall the numbers were between 20-30% of reported sales
were from leasing.  There was an article in the WSJ at the time that quoted one west coast dealer who said he "sole 200 cars" in
the last days of the program.  The point here is that somewhere in the range of 3-4 million cars sold by Detroit each year are gone
because people who could not afford large car payments used the lease program to drive new cars.  And now that credit is tight and
unemployment is rampant, there is no demand.

On the West coast of Florida is an auto group which has 21 brand offerings across 19 stores.  I have been told that last month
they sold 500 cars over the entire operation.  I do not believe that this is nearly enough to support such a large organization.  The only thing that is helping is that most of the sales are from Cadillac, Infinity, Porsche, Audi, and VW.  The wealthy are not supporting the
domestic market.

And we have not begun to discuss what Detroit will build in the future that people will  want to buy as well as be able to afford.
Certainly not a $50,000.00 Volt.

And lastly, while Detroit certainly did most of the damage themselves, the folly of the sub prime debacle was the tremor that
brought it all crashing down.

B. Dod