A Doomsday scenario unfolds for Detroit.

[T-Type]

By Peter M. De Lorenzo

Detroit. First it was the mortgage loan meltdown, followed by the gasoline price spike last spring. The collapse of the casual use light truck and SUV market - almost the entire source of Detroit ’s profitability - came immediately afterwards. Then it was the perilous slowdown of the economy, resulting in the precipitous drop in car and truck sales. Add in the turmoil on Wall Street and the teetering banking crisis, and you have the ugly icing on an already bitter cake.

Now, in the midst of the nation’s banking crisis, the credit crisis – or lack of it – threatens to derail Detroit ’s best-laid plans for its very survival.

It is one thing for these companies to muster the expertise, the technical resources and the strategic imperative to reposition themselves for a resurgence in 2010, because their backs are to the wall and it’s a relentless, 24/7 siege to keep on track and keep focused on where they want to be, as opposed to where they are now.

It’s quite another to have the very lifeblood of their business – available credit – be yanked out right from under them, leaving them with painfully few options going forward.

The $25 billion in government loans at a favorable interest rate is one component of Detroit ’s lifeline that will be spent on new technologies and the development of more fuel-efficient vehicles for 2010. That’s a given. One that comes with strings but one that was sorely needed in order for Detroit to fuel its future product programs.

But if consumers can’t get credit to buy vehicles right now, or if it becomes extremely difficult to get credit even if a consumer’s credit rating is outstanding, then we’re talking about the collapse of the entire domestic automobile industry as we know it. Not just another negative step in a long line of negative steps for Detroit, but an imminent and outright collapse.

http://www.autoextremist.com/

[stevecmh]

very good point.. people may start having alot of trouble buyin cars.. which could be horrible for GM.. hopefully something will turn around soon

[BigAls87Z28]

Not only would this effect Detroit, but EVERYTHING.
Americans buy things on credit.

And I dont see how the any of the other car divisions are not going to have problems with Americans buying thier cars?

[GAIntrigue]

Am I missing something here? If a consumer can't get a loan to buy a car, does it matter if the car has a domestic or foreign nameplate? This scenario doesn't bode well for anyone.

[jkennedy293]

Why does the credit crisis only seem to affect domestic automakers??? It must be that everyone who purchases a foreign nameplate does so with a briefcase full of cash.

[T-Type]

Originally Posted by BigAls87Z28

And I dont see how the any of the other car divisions are not going to have problems with Americans buying thier cars?

All the automakers will be affected, not just Detroit. However due to their already weakened condition, this is particularly dire for them.

[Ambalanche]

The CEO of Autonation was on CNBC yesterday and he said even now, only 60% of people with "A" credit ratings are being approved and 20% of subprime buyers are being approved. The full onslaught hasn't even happened yet. Not good!

[pinch a loaf]

Maybe for the first time in a long time people that don't qualify for credit won't get it. I don't buy all of this. Has anyone personally come to you because they can't get money? Not me. There is still plent of money out there for loan. It is just a matter of weeding out unqualified people that are trying to get the loans. Don't believe everyting you hear and read.

[zete]

The lack of easy credit is going to wipe out luxury and high priced vehicles. Folks who need a car will look for the least expensive one that serves their purpose.

What I see happening is BMW and other brands that focus on image and are expensive beyond their actual worth are going to get hammered. Most BMW owners I know lease. Leasing is going to get expensive and many folks who were borderline are suddenly not going to be able to afford a new lease or even be offered one. And financing will also be out of the question, thus they'll have to look elsewhere.

The winners I see in this will be Honda, who typically has interesting, small cars, and Hyundai. Toyota, GM, Mercedes, BMW, Ford, etc. will all hurt.

However, I also think GM is at least positioned well this time around. Delta II should offer a lot of customers the perception of a lot of bang for the money either in looks or in fuel economy. Where GM historically had boring cars with worse interiors, here comes GM with a very very nice fleet of small cars.

Furthermore, Buick, if they can play their cards right, could pull folks in who want something luxurious but can't afford German prices. I know folks who've moved from a BMW or Mercedes to a Buick, and that trend might well continue with the Lacrosse and (should we get it) Regal.

I see folks lopping $10 - 30k off their car transactions. Car sales will pick up, but we'll see folks keeping their cars 7, 8 or 9 years instead of picking up a new lease every 3 or 4 years as was possible when credit was cheap.

Thus, folks who were looking at $50 - 60k will be looking at $30 - 40k.

Ironically, though this will be bad for many luxury car makes it might actually be good for Cadillac which is focusing on the CTS and related vehicles off that platform, almost all of which fall into that $30 - 40k spot. The other irony is BMW and Mercedes can't drop their prices without totally destroying the resale and residual values of the existing cars. But I'm sure that sounds familiar to us GM fans.

[ghughes]

"And I dont see how the any of the other car divisions are not going to have problems with Americans buying thier cars?
" -foreign competitors will get some big, cozy deals from their local banks and investors and run out some loan specials- bec. they have the casssh (thanks to yuppies/rich buying the german end and democrats and women buying japanese) -

[PAULSTS1]

The issue here is perceived value, and capital retention. I have written to many other members of this forum some have said "that when they purchase a car they are prepared for 100% depreciation." Of course I know this is bravado speaking, or just delusions of grandeur, it's like saying, I don't mind burning $40 thousand dollars in the fireplace, very unlikely, if Warren Buffett saw the money burning he will try to get it out.

Unfortunately for the past 8 years or so, as the costs of vehicle ownership have climbed, many Americans have offset the costs by Leasing the vehicles. Hereby making more reasonable payments, and being able to buy cars lots more expensive than they could buy with full amortization. Back to perceived value, or in leasing-residual value (the difference between the new cost of the vehicle, and what it is worth when returned), this can vary greatly based upon: Wear and tear, mileage, and popularity of the vehicle for resale. In the case of many popular foreign brands: Honda, Toyota, Mercedes Benz, BMW, Lexus, etc. these resales remain popular and command high prices. The result is that overall costs are low, so leasing them is still not a problem. In the USA, many leased vehicles such as: Chevrolet Tahoe, Dodge Charger, Chevy Impala, Ford Crown Victoria and Explorer, are coming in an are sitting on the lot, unsold and not being shopped by many customers, resulting in low prices (LOSSES).

A similar sceanaro is overshadowing the Repossession Business, the Loan to value of the cars coming in because of the glut of vehicles, is resulting in very low wholesale prices.

In the economy, one problem affects another and now it's affecting the ability to obtain credit. Unless shopping for cash, or having a superior credit score, and chosing a popular selling car brand, many are completely out of the market! This is the problem GM, Ford, and Chrysler are facing. The waters are unfamiliar so new guildelines must be implimented. This is another major issue, when the Companies try to borrow.

[Bokl]

in one way this is good. Do you know how many people purchased suvs and tucks that can not afford? Just look at this. when price of fuel went up most of those suv and pick up trucks drivers complained and traded for more fuel efficient vehicles. If they could afford to spend 30-50k on their truck and suv they should be able to afford gas. Most of those people that purchased these vehicles did not qualify for them. They would qualify for maybe 15-20k car. SO this is good. Finaly people will start buying what they can afford not what they wish they could afford.

[Pedal 2 Metal]

It really sucks for poor people. Around here the market for inexpensive cars is totally exhausted. Cars that are cheap enough to buy from saving your money are basically all gone.

[Uzzy]

Originally Posted by GAIntrigue

Am I missing something here? If a consumer can't get a loan to buy a car, does it matter if the car has a domestic or foreign nameplate? This scenario doesn't bode well for anyone.

Don't forget even in tough times, the rich are still rich. If they tend to buy foreign makes those will not suffer as much as the domestics. But that goes for the luxury makes. The lower end foregin cars will still suffer with the doestics. Cadillac stands to do the best, but they have not finished overhauling their whole lineup yet, so it's a crap shoot if you ask me. Perhaps they'd have done better if they had a 3-series and 7-series competitor as good as the CTS, but they don't. They have nothing to really go up against the 3/C/IS and the STS and/or DTS are really don't have the 7/S/LS shaking in their boots at all.

[dindak]

I'm glad I got 0% for 72 months last month for my new Malibu.

Mite not get a loan this month!