The days of "anyone with a pulse" financing are long gone. Or they could just be getting started. As more and more people with "indirect" loans (loans not made through a "captive" firm owned by an automaker) default, banks and credit unions are tightening the reins on auto loan applications. According to The Detroit News, in the third quarter of '07, the delinquency rate for indirect loans hit a 16-year high of 2.86 percent. With '08 not looking so great, beleaguered automakers may not wish to turn away customers simply because the banks won't loan them the money to buy a car they can't afford. So, do the carmakers assume the credit risk to move the metal? The question is especially vexing now that Cerberus now owns 80 percent of Chrysler, 100 percent of Chrysler financial and majority control of GM's GMAC finance unit. If GM tanks, Chrysler wins; but would Cerberus manipulate Chrysler Financial and GMAC to save Chrysler? And Ford's finance company is still a cash cow. Would FoMoCo maintain fiscal discipline at the expense of the corporate mothership? As the perfect storm continues to gather, the stakes– and the finance rates– have never been higher.
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Big problemo! The Detroit-3’s wares will have to be sold on their merits.
And from the sales and market share numbers we have all been seeing the last few years from the Detroit 2.8, selling their wares on the merits of the vehicle may be a lot harder to do than one thinks especillay when one takes into consideration the Europen and Japanese compitition is much better in just about every way especially in terms of quality, reliability and resale value.
Wow..sounds like and intro to “As The World Turns” or perhaps “Soap”.
Hey, Repo Man. Great Flick. I owned a 1965 Malibu rather like the one in the movie except mine had 4 doors. Small block V8. It was a sweet car. OTOH, it died dead and was towed away for $100 in 1974, after about 75,000 mi and 9 years. Not what you would call durable in the 21st century.
If you want a case study on the effects of rental fleet car sales and high risk loans – look at Mitsubishi about 4 years back. The fit hit the shan with them and they also had that massive 23 year recall cover up scandal hit about the same time.
A couple of thoughts….with the dollar declining, the cost of imported parts is RISING…any auto parts made in Canada, or Mexico, or china or Japan are more expensive for the OEM’s, so margins are falling. However, for consumer’s the cost of IMPORTED cars should also rise… if they don’t, the anti-trust folks should become very interested. That should make the people who are well-heeled enough to be buying new cars consider American makes…always presuming rational consumers. That is the way markets are PRESUMED to work, anyway….so, what the Big 2.8 should be focusing on is two things…avoid the discounting to keep margins consistent, and be lobbying the Bejesus out of Washington to keep the Anti-trust police all over the foreign makers to make sure that cost fluctuations caused by currency re-balancing DO fall out to the consumer, as they should. IF foreign makers are banking on narrowing their margins, or eating losses, to keep or increase market share (thereby potentially knocking one or more of the big 2.8 into bankruptcy)that is called predatory pricing and is illegal last time I looked. We don’t need another damned government bailout at taxpayer’s expense….we need the government to do what it SHOULD do, enforce laws and make sure that the market works fairly. If the market works fairly, companies’ rise and fall on merit only….
What you are describing is not an anti-trust issue. The cost of imported parts may indeed rise but the impact would not be limited to import brands. Besides, a declining dollar does not necessarily mean prices in the US have to increase for imports. There is currency hedging for one thing and manufacturers (again domestic and foreign) know that constantly shifting prices due to exchange rate changes would tick off consumers.
Falling dollare won’t affect made in the US imports only true imported cars and that includes made in Canada vehicles regardless of brand
auto,
What you are describing in a somewhat convoluted and overly cynical way takes a long time to take place. Furthermore, in today’s market, the origin and costs of parts has little to do with the make of the car, or it’s point of assembly.
If a part is only manufacturered in another country, but all the other labor and capital is US in origin, then the pressure to raise the price will not be that great because the foreign costs could be a small percentage.
A delinquency rate of 2.86 percent doesn’t seem all that high, and after 16 years, no less.
It would be interesting to know how things were going with the finance companies for the Japanese (American Honda Finance Corporation, Toyota Motor Credit Corporation, et al.).
Although the Japanese do not have to discount their vehicles as much as the Americans, their finance rates seem very competitive with the Americans.