“GIVE $10,000.00 to the first 5 million new car buyers.” This is what a good friend and knowledgeable automotive executive suggested to me today. Not that I should write the check to the 5 million car buyers missing from the projection of new car sales for 2009. It has been said that the industry needs to sell 15 million new cars every year to stay ahead. Well 2008 was off and 2009 looks to be shy of the 10 million sold last year. Now this issue goes to the root of the current recession. Those who can afford to buy cars aren’t because they are concerned about job security. Those who need to buy a new car can’t because the banks won’t give them a car loan. In between these buyers are the factories trying to stay in production and not layoff employees and the bank staff needing to make loans to generate income, all of whom also buy cars.
The state of the Detroit Big 3 is just one component of the auto industry struggle, yet it seems to be getting the bulk of the attention and our tax dollars. In reality, the state of Chrysler, GM and Ford is of their own doing. For years they ignored the public’s demand for better quality, market trending vehicles instead feeding the consumer the vehicles with the most profit for the car company. The steady diet of gas hogs and rebates contributed to the overall distress of plummeting values in domestic products, and consumers bloated with negative equity.
I asked Jim Mooridian, owner of Courtesy Imports in LV about his take on the depth of the auto crisis, “The auto crisis is not just about people not finding a car they want to buy, it’s about their negative equity position on the car they presently own and the growing demands of the bank to make a loan feasible. As the banks suffer huge defaults and repossessions on cars, they increase the pressure on new borrowers with demands for larger down payments and higher interest rates. The need to be in an equity position on the auto loan has created further depreciation (lower book value) value on the car, combined with falling values due to gas prices and the number of defaults on luxury models owners can no longer afford. A lower book value means less of a loan, at the same time banks are reducing the amount of the loan they will give a client, they demand more CASH (sic: rebates don’t always count as CASH down) down-payment. Where a person with a 700 score could purchase a new car with no money down for a low interest rate, today the bank wants proof of employment and 20% down, which may only cover taxes and fees, not negative equity if they have a trade.”
SO when Larry West, dealer owner/GM suggested the government give everyone who wants to buy a new car a check for $10,000.00 I was quick to question his logic. Are we throwing good money after bad? I asked. His answer was thoughtful and inspiring, “If we give 5 million people (the exact number the auto industry needs to get to 15 million sales this year), a check for $10,000.00 to be used specifically for the purchase of a NEW CAR (no lease or used vehicles allowed) the stimulus will be immediate and rewarding.” Not to mention a lot less expensive than the $100 billion the Detroit 3 say they need to carry on doing business for the next year.
“The key is this” West goes on to say, “The check goes directly to the consumer to buy the car he/she wants to own. They [the car buyers] vote with their wallet, for the brands that deliver the product; quality, value, reliability, safety and economy. Furthermore, the $10,000.00 puts the bank in a positive equity position (loan amount to value of the car) where the bank is buying the loan for the right reasons. The consumer buried in negative equity, (owning more than what their car is worth) has enough cash, the $10,000.00 check, to get themselves out of the old car without burying themselves in the new car. The rules of engagement are NO predatory interest rates, no CASH BACK to the consumer, and the credit must be approved by the lender. The public couldn’t use the check for anything but toward a new car purchase. It’s a win for the industry: the dealership sells cars, the factory gets to make new inventory, and the bank gets a new loan. The American public sees the effect of their tax dollars in the Auto Bailout almost immediately, as their neighbors, family and friends are buying new cars.”
The reality is the Auto Bailout of the American car manufacturers should not be about saving two or three behemoths’ that have seen their day and continue to make basic business mistakes. The US car market is now comprised of designs and technology manufactured here by automakers from around the globe, whose employees are no less affected by the state of the auto industry here and abroad. BMW, Toyota and Nissan have slowed production or idled shifts at their US plants. The opportunity to revive the auto industry starts with giving the public what they want to buy, and a way to afford it. The opportunity to see $50 billion of the $789 billion stimulus package go directly to the public for car buying makes more sense than buying clunkers or meeting the ransom demands of foreign car manufacturers who want to be paid to buy Chrysler. If they want to sell cars in the US, bring the products the consumers want and put your money where your mouth is; FIAT. In the meantime, perhaps the auto industry virgins of the new CAR CZAR BOARD would like to discuss the reality of making a car deal that works for everyone; dealer, factory, bank and consumer, with some of us in the trenches. I’m sure Mr. West and Mr. Mooridian would be happy to guide them through the paperwork. ——————————————————
To learn more about getting your best car deal click here: CAR DEALS Sarah Lee is an automotive executive with 20+ years of experience. She writers about Cars, and is a staunch consumer advocate on car related subjects. Her company: MY CARLADY is a car buyer’s service committed to getting you the best deal on your next new or pre-owned vehicle. You can reach her at www.mycarlady.com