Auto Loan Makes Too Few Dollars Even Less Sense

December 4, 2008, 5:40 a.m.

What Are Auto Execs Smoking?
Plan Smoke and Mirrors Without Detailed Projections
From one hour ago see, James Rowley and Linda Sandler, "GM, Chrysler May Accept Bankruptcy to Receive Bailout, Bloomberg, December 4, 2008.

This is from New York Times:

"On the same day that the industry reported its worst sales month in 26 years, the three Detroit automakers delivered new business plans to lawmakers in the hope of winning support for $34 billion in federal loans . . . substantially higher than the $25 billion that the three companies had initially hoped to get from Congress two weeks ago. . . .

But G.M. . . . said Tuesday [December 2] that it was in such dire straits that it would deeply cut jobs . . . as part of its plea to get $12 billion in federal loans and an additional $6 billion line of credit. . . .

G.M.’s president, Frederick A. Henderson, said the company would be insolvent if it did not receive federal assistance, including an infusion of $4 billion in cash before the end of the year. . . .

Still, the company said it would have been able to survive on its own if not for the continued deterioration of the United States vehicle market, because of the weakening economy and tight credit, which has made it difficult for consumers who do wander into dealerships to get loans.

“The company would not require government assistance were it not for the drastic collapse of the U.S. economy which has devastated the company’s current revenues and liquidity,” G.M. said. . . .

G.M. also said it planned to reduce the number of salaried and hourly workers in the United States workers from 96,000 currently, to 65,000 to 75,000 by 2012. It will also reduce its North American factories from 47 to 36, and its dealers from 6,450 and 4,700.

Bill Vlasic and David M. Herszenhorn, "Pursuing U.S. Aid, G.M. Accepts Need for Drastic Cuts," New York Times, December 2, 2008.

"The [Michigan] unemployment rate is 9.3 percent . . .. The total of Michigan residents who receive some form of public assistance, like food stamps or home heating credits, is now 1.82 million, or close to 20 percent of the population, a record for the state." Monica Davey and Susan Saulny, "Even in Michigan, Not Everyone Wants a Lifeline," New York Times, December 2, 2008.

The Fed's "beige book," a compilation of anecdotal reports from businesses across the nation published roughly every six weeks, found that "overall economic activity weakened across all Federal Reserve districts since the last report."

Consumer spending weakened almost across all sectors of the economy, especially for vehicles. . . . Services business "generally contracted in most districts."

Part of the problem was that lenders have continued to restrict credit. "Credit standards rose across the nation," the beige book said, "with several districts noting increases in loan delinquencies and defaults, especially in the real estate sector." . . .

[P]rivate businesses shed 250,000 jobs in November on a seasonally adjusted basis. It was the biggest drop in seven years and "offers evidence that the labor market continues to weaken," ADP Employer Services said in its monthly payroll survey [Automatic Data Processing, "National Employment Report"].

Based on data from nearly 400,000 companies, the report showed employment declines across the board as large, medium-size and small companies shed jobs, and employment contracted in all sectors of the economy. . . .

The numbers from the ADP report are "terrible," wrote Ian Shepherdson, chief U.S. economist with the High Frequency Economics consulting firm, in an analysis of the employment numbers.

With payrolls deteriorating in both the manufacturing and service sectors, "there is nowhere to hide," he said.

A separate study by the Institute for Supply Management showed that economic activity in the service sector fell to the lowest level since its index for the sector was first reported more than a decade ago. . . .

Neil Irwin and Howard Schneider, "Economic Weakness Pervasive, Fed Says; All U.S. Regions, Most Industries Hit by Recession," Washington Post, December 4, 2008, p. D1.

The economic decline took a turn for the worse after the market shocks of October. In November, the problems only deepened.

Cash-poor Americans, fearful for their jobs and victims of a steep decline in stock prices, pulled back on spending. Businesses laid off workers, cut wages and reduced hours. Real estate developers and owners suffered.

That bleak portrait — effectively a confirmation of the conventional wisdom of the last few weeks — was released on Wednesday afternoon [December 3] by the Federal Reserve in the latest edition of its beige book . . ..

At the root of the problems is a significant slowdown in spending, as Americans retreat from large-scale purchases and try to save money amid the worst downturn in a generation. Retail sales fell in most major cities, according to the beige book, while sales of automobiles “deteriorated,” particularly sales of more expensive cars like sport utility vehicles. . . .

Manufacturing activity slowed last month in all 12 districts included in the beige book. Both residential and commercial real estate companies reported problems. Vacancy rates were higher . . ..

Lending by banks slowed as well . . ..

Michael M. Grynbaum, "Fed Report Shows Downturn After October Shocks," New York Times, December 3, 2008.

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