To me it seems like one major factor that doesn't get mentioned often enough is that GM is partly suffering today because off all those 0% interest loans they did in 2002/03/04. What I mean is that GM fans loaded up on their favorite GM models over those 3 years and after they paid off their 5 year 0% interest loan they are in no need to go out and buy a new car since GM cars and trucks are made a lot better and last longer than the media gives them credit.

If I remember correctly foreign brands didn't offer 0% interest loans like GM ,Ford, and Chrysler back in 2002/03/04 and therefore they didn't have a huge block of their loyal customers all buy cars within the same 3 year period like the US domestics.

If this is true it still might be a couple years before GM fans who bought cars/trucks in 2002/03/04 will need to buy a new car, and by then the global credit crisis should should be lot less severe than it is today.

just my 2 cents..


It should also be noted that GM was surviving off of all the profits generated by home loans and etc by their GMAC division back in 2002/03/04/05. Those profitable home loans helped offset all those 0% interest car loans which assisted in creating an unsustainable business model back than which created some of unintentional consequences that we see today.

 

I would not say this is the case. People still want new cars...and right now there are some better deals on the cars themselves than there were a few years ago. The problem is..many of the people who want new cars don't qualify for a loan (or reasonable ones)..and many of those who do are too wary to buy a vehicle with the economy the way it is. One other factor is many banks have changed their lending to make it so you can not buyr a bunch of negative quity in a car anymore. For instance when I bought a new car in September, the dealer told me he was turning away people in droves because many of the banks had started considering invoice price, they price AFTER rebates...versus MSRP..which really limited the ability to bury negative equity. Maybe a good thing in the long term..but it's a killer if your GM and use rebates to get people into cars they otherwise really could not get.

Basically, the way GM sold cars 3-4 years ago is obsolete at this point because of the lending situation.

I think the reason the big 3 is hurt so bad is simply because they were teetering to begin with. I mean when the market is so bad the cash machine of Toyota takes a loss...you don't even have to ask details to know GM will be in a world of hurt.

 

It has hurt them tremendously on used resale or residual values of leases.

There's something wrong when a 10yr old civic is worth more than a 5yr old Grand Prix.

 

Formula,

I don't disagree with any of your points, but there's no doubt IMO a lot of people bought cars earlier in the cycle than they would have to take advantage of low and easy 0% interest car loans back in 02/03/04.

For me personally I bought 2 new GM vehicles back in 2003 and a MINI Cooper in 04 which are all now paid off, and all my cars still run great so there is no need to replace them. I could easily get a new car loan if I wanted since financially I'm still doing well but when things are tough for neighbors and friends of mine I don't feel that competitive urge to run out and get something new when I don't need to.

I don't know, maybe when the economy is in the dumps for most people it changes everyone's buying habits for a while.

 

Well..the thing is...GM created a culture of buying more car than you needed, and using rebates to get a new one. Now that gravy train has been stopped because even though the rebates are there..the loan is not. In many cases when the 0% financing was there...either the buyer did not qualify...or even if they did..they took the rebates to bury negative equity on their trade. I am good friends with the GM of the Chevy dealer I get my cars at..and he said by and large..very few people took the 0% and instead went with the rebates because that is what their situation dictated.

As for paying cars off..I personally know very few people who buy new vehicles and pay them off. The people with that kind of financial dicipline normally buy year old used cars anyway. Your typical new car buyer..is more a "gotta have" buyer and will generally tire of a vehicle before the loan is up. I know...aside from my GTO which is paid off (and will never get rid of)..I will never pay another car off. It makes no sense because I always have the "I wants". I would rather keep a car 3-4 years..trade it..and get a new one..than keep one 5-6 years, pay it off and realize I want a new one. That may change for me though...bnecause it looks like aside from the Camaro..there is less and less stuff coming that interests me.

 

Seeing as how I was selling Olds and Pontiac during that timeframe, my .02...

It, without question, DID pull a ton of sales ahead...as did Employee Pricing. Didn't GM sell something like 125k full size pickups during May or June of '05? Think about that...in ONE MONTH! Those trucks are barely 3 1/2 years old, and not close to being paid off yet.

OF COURSE these stupid promotions pulled sales forward. How many people NEED to trade in a truck, or car for that matter, every 3 years? No one. Those that WANT TO are currently staying home, because they know they don't need a car, either. Several sources in the automotive press all feel that the numbers we saw earlier this decade were artificially inflated, and do not reflect normalcy going forward.

How much support is there for my own theory? I look at my own damn garage. Our Grand Prix was purchased new by the original owner under 0% financing in May 2004. It was traded in, at a massive loss, 2 1/2 years and 13k miles later. I talked to the woman trading it in...she said "I know I don't NEED a new car...I just trade them in 6 months before they're out of warranty. I always have." Now that car has 34k on it, and is nowhere near the end of its life cycle with us.

Meanwhile, my truck was purchased new by the original owner under Employee Pricing in July 2005. 3 years later, he traded it in to me with a whopping 31k miles on it. He took a bath on his trade too, as it was traded in during the height of the gas prices, when NO ONE wanted a truck (I felt bad for the guy...I bought it myself because I needed to give him $1,000 more than a wholesaler would give me for the truck to make the deal...so I put up my own $$$, made the deal, and got lucky...). 6 months later, the truck hasn't cracked 34k yet, and with the way these things are built? I'll have it 10 years from now.
Why did he trade? "I just do it every 3 years. I don't even think about it."

What does all this rambling mean? 1) People that stupidly trade early are drying up, fast...hurting sales. 2) People like me that bought their trade ins cheap, rather than pay all the money for a new car, are set for a long time. 3) People that bought new cars under these promotions that still have them are also likely set for a long time...they don't need new cars yet, either.

The whole cycle pulled people ahead. I remember hearing people tell me "I wouldn't be buying a new car right now, but how long can these deals last for?" over and over again during 02-04. Hell, I was one myself...I bought a new Grand Am GT in '02 when the rebate hit $3k. How long could it last, I asked myself???? It went to $4k 3 months later

I WANT to support the automakers right now by buying new products. I try to keep convincing my wife we should get her a V6 Challenger...for low $20s, its a helluva buy with a real back seat, and a nicer looking interior than a Camaro (the interior kills the car for both of us). Meanwhile, I know the incentives are going to get good on the last of the current-style HD Rams this Spring, and I have a reg cab Hemi black one in stock I keep eyeing. At the same point, I got such good deals on mine because of the give-aways on new equivalents, why spend the money? Neither of our cars have even cracked 40k yet. And when I work for a Chrysler store? Why take the risk right now?

There are way more cars out there right now than buyers...for EVERY MAKER.

 

Another angle on the lack of customers *IS* the disappearance of company backed leases.

My wife and I had been leasing vehicles since about 2001 or 2002... the leases would be 2 to 3 years. So, there are 2 new vehicles moved out the door each lease cycle.

Well, now that era seems to be over. When I turned in my GP GXP, I BOUGHT my SRX (granted, at 0% for 72 months)... and honestly, I probably won't be turning vehicles over at the rate I was in the past because of that.

 

How about another angle much along the same lines, Johnny & Branden.

That 0% financing and the culture of inducing people to buy more vehicle than they needed (or originally wanted) had a double effect, perhaps unintended effect.

First, zero percent got people to buy cars and trucks well before they would have in a natural cycle. Back in the older days, people would buy a car, keep it for 3 or 4 years, then buy a new one as soon as they were on the upside of what they owed on the vehicle versus the vehicle's value. Also, around that time, a new or updated version of that vehicle was normally available, offering an incentive on it's own. 0% got people to shorten trheir buying cycle, and with more people buying now would eventially mean that sooner or later the population would not only be saturated with new vehicles in their hands, but have at least a couple of cycles where they traded in or sold their vehicles owing more than the value in order to get an even more expensive model that they would eventially reach a point where they could do this no longer.

Second consequence is that GM got addicted to this practice to the point they built their entire business model on it.

There is no reason on the planet for a company that sells as many cvehicles as General Motors does to be anywhere near the point of going under. Yet they are, and this is a text book example of gross mismanagement to the extreme (I mean this as a culture and a group, not a particular individual or another). GM became dependant on moving massive volumes of vehicles to fund an ever increasing expensive-to-run company. Between buyouts, purchases, deals that likely wouldn't have even passed first muster in any other business, GM jumped on because perhaps they felt that they would simply pump up volume of a few more high margin trucks to make up the difference.

Then the house of cards fell.

When you look at GM's sales volume, even today, it STILL is incredible! Despite the cave in of trucks, General Motor's Chevrolet Motor division car sales are down a mere 4%! Cadillac may be down substantially, but Cadillac is a high margin division. Despite Buick being all but irrelevent today, Buick's lineup is nothing more than reskinned versions of something else. GM probably spends more marketing Buicks than it spends creating them.. especially with China. GMC has so much in common with Chevrolet trucks and has so littel invested, GMC is simply an advertizing division more than a truck division.

Yet, GM would be in recievership this moment, and would likely face the start of liquidation as early as this spring although it's the planet's largest car company with operations on every continent and a product presence in virturally every country, from Cadillacs in Russia to Daewoos in Thailand. There isn't a Middle East segment on the news that has an outdoor shot that doesn't have at least 1 GM vehicle in it. Corvette ZR1 is quickly succeeding the Z06 as the must-have car of the rich in Dubai. GM still has the number one share of vehicles... hell....just Chevrolet has the number one share of vehicles sold in the US...... and GM still lost over 3 times the amount last year what the government just gave them.

Johnny, you have a point that 0% might be the root of GM's problems, and Brandon, you're right that it created a culture of buying more vehicle than a person wanted. But it also threw the industry's normal public buying cycles, and GM itself built it's entire mentality not just around selling more vehicles each year but also accepted the idea of making so little on each vehicle (on average) that it was left venerable to even the slightest market upset, let alone a meltdown that it should easily weather.

Shortsighteness replaced financial stability.

Keep in mind, this is the same General Motors that survived the Great Depression.... and the US was flooded with just about as many car companies available to the public then as is today.

With the greater global presence GM has today and the companies they have set up in other continents that other manufacturers simply can't touch, GM should be crucifying Toyota right now.

Yet Toyota is worth over $100 billion, and GM is worth -$60 billion.

 

At the same time, what was GM to do?

Not offer significant financing options in a time where competitors were risks losing sales completely vs pulling them ahead.

That said, it does seem like GM started most of the sale 'waves'.

 

One can say that it's competitors got ahead by not doing it. Toyota & Honda didn't do it.

Then one could bring up that Toyota had a quality reputation and Honda simply made good cars..... and that's the point.

Chrysler even did well for awhile on the back of the 300, strong truck sales, solid minivan and PT sales. It's plain to see that the Chrysler was essentially ravaged by 2 successive owners after it's most valuable assets (it's cash hord, Jeep, and now Chrysler Financial) that left only token coins to stauy competitive.

Although I disagreed at the time, Ford threw off it's non-core businesses, put money on reaching Toyota beating quality ahead of all new models, and morgaged everything they had to replace their entire model lineup.

Again, it's not the error of a single individual at GM. There is a good sized Board of Directors at GM that could have changed direction at any time, GM had more Chairmans and Presidents than any other car company, and it takes a certain mindset to rise at General Motors. So it's a culture that failed, not an indivudal. You can remove the CEO, but is the next one going to be any freer? The next CEO (if from within GM) would have grown up in that same GM culture. If the next CEO comes from outside, he's not likely to have the freedom to do what needs to be done since he works for the BOD and the BOD has associations within GM's culture.

Darth, you ask a very good question "What was GM to do?".

2 answers.

1. What GM should have done was focus on returning to profitability and market stability, and realize that time was of the essence.

2. What GM did was the only thing it knew how to do: stay on the same cource, and when forced to move, move only slightly after long drawn out thought, debate, studies, more debate, more thought, etc.

Don't forget, there is nothing that GM needed to do that it didn't know how to do:

* It built Oldsmobile into one of the highest quality cars in the US, but never extended that comittment beyond Oldsmobile.

* Bob Lutz began preaching about better interiors back in 2002... and after years of fighting, we're only now starting to get them.

* GM's UAW strike of 1998 was at first going GM's way (the last time the UAW was utterly and totally unreasonable IMHO), but then they suddenly and unexpectedly caved in...even though GM had a sizable cash hoard to last quite awhile.

* GM created the Cobalt in roughly 18 months... unheard of speed in the car industry, even by today's standards.

* GM's 1977 downsized fullsized cars were done (from the ground up, mind you!!!) in a mere 3 years, also lightning speed by industry standards...even today...(and we aren't talking about a single model... were talking 5 different car divisions...8 different sedans... 17 different frigging bodies!!!!).... but yet today, GM can't bring out a single architecture in 2 divisions at the same time anymore, and it took them about 4 years just to decide they weren't going to make the Zeta Pontiac here. The Zeta Impala took 6 years to decide, and the Zeta Buick & Cadillac's decision ranged up to 7.