GM cuts off their nose

Tight Credit Puts Squeeze On Big Three Auto Dealers (August 28 – WSJ)


The credit crunch squeezing Detroit's Big Three auto makers is now spreading to some of their dealers, adding financial pressure to a group already strained by this year's big drop in auto sales.

The latest and most prominent example is Bill Heard Enterprises Inc., one of the largest Chevrolet dealers in the country, with 2007 sales of $2.1 billion. Earlier this month GMAC LLC, the financing company partly owned by General Motors Corp., stopped doing business with Bill Heard over concerns about financial losses related to the privately owned chain of 14 stores, Bill Heard confirmed through a spokesman.


If I were to be exceptionally sarcastic here, I would note that it is lucky for GM and its dealers that there was 3.3% GDP growth last quarter. If I were to shrug off the GDP report as hopelessly inaccurate, I would observe that when an auto manufacturer cuts off a $2.1 billion dollar (annually!) distributor of its products over concerns about the financial health of that entity, then there is a deep recession underway.

GM is not stupid. They know that cutting off a major dealer – one who has certainly absorbed a lot of GM product during slow times to help GM “make the number” – is like cutting off one’s own nose. This would only be done under the most dire of circumstances. This move is direct confirmation that we are in the midst of a severe recession (only the US government doesn’t know this due to faulty reporting), and that GM is now locked in a death spiral.

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