The worst news from yesterday's rejection of the bailout will be for, as usual, those least able to afford it.
In a huge blow to consumers, part of the bailout bill defeated Monday would have allowed the Treasury Department to buy securities backed by automotive loans, similar to some (new) government entity buying-up securities backed by so-called subprime mortgages and holding them until some value returns and finance houses want to own them once again.
But now that both sides in Washington are against allowing bankruptcy judges to rewrite home mortgages to try and help keep people in their homes, it seems people late with their car payments will get the same kind of help - none.
But Detroit is about to be doing just fine.
As explained in this blog just days ago, the Detroit Three and some of their suppliers will soon start dividing up $25 billion in bailout funds which were part of a bill passed last December.
Also, the Federal Reserve is now able to make other "special loans" to automakers so they can provide inventory financing to their dealers, so dealers can continue to buy cars and trucks for their showrooms.
But if the public can't afford what's in those showrooms anyway, who really benefits?
Reminds me of the Doonesbury series in the '80s when the more money an executive lost while running a tech company, the bigger a star they became on Wall Street. And right now, we've got three men running the Detroit Three who have no experience in actually planning, designing, building or selling cars ...
If someone is late paying their mortgage, it's almost a given they're late on their car payments, too. People pay their mortgage first, and their car notes next so they can get to and from school and work.
And cars and trucks gets repo'd a lot faster than houses get foreclosed; a few weeks versus as long as a year. Some new and used car dealers have electronics in their vehicles which will shut off the engine when a payment is late, but that's grist for a future posting.
New car dealers treat their used car lots like jewelry stores; they often make more profit on a used car than by selling a new one, especially their "certified used cars." Customers with good credit can finance a used car there just like a new one, and some dealers are even involved in leasing their used cars as well as new.
Many of the large used car chain stores, like CarMax, AutoNation USA and Driver's Mart operate in such high volumes that they're competing for the same financing cash new car dealers are. Again, very good credit customers can expect to find some kind of financing, even now.
But things are not hard only on the bad credit customer; they're also tough on the small, often fiercely independent used car lots which "carry their own paper," or, offer their customers financing, sometimes through alternative resources. Often these businesses, many family-owned, are the only places credit-risky customers can buy a car or truck. Many of these dealers and their customers are already seeing higher interest rates than they thought possible, certainly more than either one can afford.
Today, the average new car dealer in the US sells over $33 million worth of cars and trucks annually. Roger Penske's company of dealerships, publicly traded, owns 150 dealers in the US and another 100 around the world.
Franchise laws written decades ago forbid carmakers from owning dealerships in the US. But considering the shape our economy is in, why not give those manufacturers a shot at selling their cars, too? Again, grist for another posting ... but something to think about.
Over the weekend, Caterpillar Corp., one of the most successful American manufacturers, was in desperate need for $1 billion in credit; to keep their doors open, to keep their assembly lines moving, to keep their sales and service people around the world working for the company's customers.
They got the billion, alright, but only at twice the interest rate they could have gotten just a few days before. It worked out to 7 percent versus 3.5 percent; the interest on the billion could have been $35 million, and now Cat will be paying a minimum of $70 million.
If any good comes out of this mess, some of it should involve the auto industry, at every level, making the wholesale changes in the way they operate which will benefit all of us - their customers.
More tomorrow. Please check in daily; we'll try to have a new and relevant post every day as long as this crisis is happening ... and please leave us your comments, questions, criticisms, ideas, suggestions, your own experiences ... whatever you like. We really appreciate your time.