Another Fear-Mongering Claim Proved to be Total BS

The scare story, from November 2008:

Advocates for the nation's automakers are warning that the collapse of the Big Three - or even just General Motors - could set off a catastrophic chain reaction in the economy, eliminating up to 3 million jobs and depriving governments of more than $150 billion in tax revenue.

Industry supporters are offering such grim predictions as Congress weighs whether to bail out the nation's largest automakers, which are struggling to survive the steepest economic slide in decades.

Even if just GM collapsed, the failure could bring down the other two companies - and even the U.S. operations of foreign automakers - as parts suppliers run out of money and shut down"¦.

Automakers say bankruptcy protection is not an option because people would be reluctant to make long-term car and truck purchases from companies that might not last the life of their vehicles.

I called BS on this at the time.  Turns out it was yet another made-up scare story to justify government coercion and more unthinking expenditure of taxpayer dollars:

One of the biggest fears of a GM bankruptcy filing -- a collapse of revenue -- appears to not be as prominent an issue as originally thought.

Car buyers appear undaunted by GM's bankruptcy, assuaging one of the auto maker's biggest fears heading into Chapter 11. Early signs point to stable demand for GM cars and trucks since the company filed for Chapter 11.

Mr. Henderson said June retail sales are tracking higher than May. "June sales are moving along just fine," Mr. Henderson told reporters at a summit in Detroit. Sales to rental and other fleets are down from last month, he said. "We're very gratified for the support of dealers and customers that we've received through this."


  1. Tim:

    June 2009 sales figures:

    Buick, down 10.7 percent to 8,601
    Cadillac, down 40.9 percent to 8,473
    Chevrolet, down 33.3 percent to 106,712
    GMC, down 36 percent to 19,668
    Pontiac, down 16.4 percent to 23,740
    Saab, down 58.4 percent to 779
    Saturn, down 60.2 percent to 7,520

    Chevrolet sold 9,320 Camaros – almost 9 percent of the automaker’s volume was made up of the two-door sports coupes.

    Pontiac’s sales were the best thus far this year, despite GM’s announcement that it will kill off the brand. G8 sales were up 135.8 percent to 3,622 and Vibe sales – driven by high fleet sales numbers – increased 25.2 percent to 6,116.

    I would point to the fall-off-a-cliff numbers for Saturn and Saab as evidence
    that the assertion is partially true -- that people won't buy cars from companies that might not last the life of their vehicle. I'm not sure what's going on with Pontiac; except for the unfounded supposition that people are buying them as collector items -- a cachet that Saturn and Saab don't carry.

  2. Jim:

    I'm not so sure it's just a scare tactic. I'm in the market for a new car, and I am not even considering a GM or Chrysler car for the very reasons listed - I'm not sure the manufacturer will be around for the life of the car, and even if it is, there doesn't appear to be any guarantee that my local dealership will be around. I'm not interested in having to drive to my nearest city in order to get my car serviced.

  3. Paul Kenworthy:

    Unit volume numbers are not an accurate indicator of buyer preference. They don't account for industry-wide changes or seasonality. Market share is a much better indicator.

    GM had 20.2% of the market in June 2009 versus 21.9% in June 2008. Not much of a change.

    Their domestic car share actually rose to 9.3% in June of '09 from 8.7% in June of last year.

    Domestic trucks were down to 10.6% from 12.9% last year.

    Ford gained market share going from 14.0% in June of '08 to 17.2% in June of '09.

    Chrysler dropped to 7.9% from 9.9% in June of '08.

    BTW, Toyota was down to 15.3% in June this year from 16.2% in June of '08.

    The real question will be how the change in product mix will affect the bailed out companies. Americans still like US light trucks. They bought 154,107 light trucks from the Big Three in June, but only 149,727 cars. GM has 10.6% of the light truck market. Toyota has 5.5%, Honda 5.0%, and Nissan 2.1% Even Chrysler at 6.1% beats Toyota. Together the Big Three own 27.6% of that market. Light trucks are 46.5% of the total market; up from 44.4% in June of last year. Only now the government is going to make them emphasize small cars. I had a friend whose maxim was: find out what you don't do well, and don't do it!

  4. Tim:

    The percentage change in unit volume numbers are the change from the previous year; which account for seasonality. They are usually cited with *all* of the industry, so you can get a relative comparison.

    Market share isn't as useful within a company; because product planning is based on seasonally adjusted number of units, not on market share. So GM's decline of 1.7% isn't as good of an indication because GM is structured for a volume that they didn't achieve.

    Why is raw volume number more important? Supplier contracts amortize engineering, design and tooling, ED&T, a/k/a fixed costs, over the product planning volume. If volume exceeds planned volume; the piece cost goes down, and if volume falls short, the piece cost goes up.

    The race is GM getting their planning volumes right versus their sales volume. If the latter falls faster than the former, GM burns cash. (And parts are sourced 2-3 years in advance of start of production.)

    So, even though GM's volume fell only 1.7%, (which, by the way, is a lot, relatively speaking) their sales numbers tell the true story -- their burn rate hasn't really slowed down.

    As for the mix change, I suggest you go to a couple of domestic dealerships and take a test drive or two. The products are very competitive, maybe for the first time in a couple of generations.

    Except for Chrysler. They still have big-time problems.