The Real Reason the Government Doesn’t Want to Bail out the Auto Makers.

reply to post by ProtoplasmicTraveler

Propping up the banks, insurers and financial service industries that employ far less people, and produce nothing of real value at a cost of several times what the Auto Makers were hoping for makes little sense on the surface either. Unless you are inclined to suspect it’s the organized theft of the treasury as I do by the powers that be.

Though it makes bad economic sense, surveys conclude most Americans would choose going to the dentist for a root canal than a car dealership to buy a new car. The average citizen would hardly bemoan the government’s refusal on that basis alone.

Unlike Bankers car dealers really spread their wealth around. It’s a self serving thought and action of course, the expectation is if your son’s little league team had their jerseys paid for by the local car dealer you will at least browse their inventory before perhaps making a choice to purchase elsewhere.

Car Dealers and Realtors happen to be independent News Papers bread and butter. These two industries typically make upwards to 80% of most of the advertising local news papers take in. Circulation and sales of news papers does not make them profitable. Advertising makes them profitable. Car Dealers and Realtors make them profitable.

Could it be that the or one of the main reasons for allowing the impending bankruptcy of the Auto Makers is to force the sale or closure of the nation’s last few remaining respected and independent sources of news? I wonder, what are your thoughts on this?

Looks like a good insight but OTOH, newspapers first felt the downturn in sales when tv arrived. Then cable tv made the decline faster. Then fax machines were all the rage. Finally, the internet dealt the death knell. It may be that dinosaurs just die off without a meteorite smashing the planet?

I must agree with 99.44% of what you say, Mr P/T. Problem is you are attributing TOO much smarts to the Gang of Four that ruled W-DC the last 8 years. Bush43, Cheney, Rumsfeld and Rice. Yes, I know, Rummie is out of a job. But it will take Bob Gates another 2-3 years to UNDO the harm Rummie did to the Pentagon and the US Military Establishment. I’m not sure Gates wants to stay on that long. All the 3 star and 4 star promotions made in the last 8 years are suspect. Rummie trucked no dissenters.

Aside: Now I forgot what Gates has said about Vietnam. I am of the highest HOPE Gates will keep Barack from sliding down that slippery slope Johnson, McNamara and Westmoreland went down. That KILLED Johnson’s plans for America although many GOP types just loved it! Afghanistan definitely has the potential to be Joel Chandler Harris’ TAR BABY to Barack. www.en.utexas.edu... END

On Cars. A long time ago - 1960s I think - the Auto Makers came to the rescue of dealers. It seems someone had got into the pricing of cars and posted in magazines the dealer cost of everything. Now dealers often took the position they would sell a car for $100 over on the grounds they could get its replacement tomorrow. and a “C” note is OK for not much work. Plus, you can turn a buck on the trade in and also, it may help to keep your service department busy.

The Big Boys knew you can’t run a business that way. So they cut the dealer’s markup over cost in HALF. Car magazines now had to post the new dealer cost figures. But in the fine print, was the DEALER HOLD BACK or DEALER INCENTIVES as it was variously called. The deal was, on selling a car, the dealer notifies the maker and the maker pays the dealer the HOLD BACK or incentive, which meant the dealer actually made about 50% of the posted MSRP price profit. Dealers can survive on that. The practice is continued to this day. The two price scheme protects dealers form themselves. But it is a deceptive business practice for the dealer to say he pays the price he shows you. He does not.

But you can figure it out for yourself. Look around you at the inventory and the physical plant. Dealers must pay “a cent and a half” per month for the floor plan - banks buy the cars from the makers as all car deliveries on cash on the barrel head! That’s 18% per year. Advertising is usually budgeted at 5% of gross.

If the dealer sells 100 new cars a month - well, I figure a dealer must gross $3,000 per transaction. That means if you trade in a car, he must make $6,000 on the two car deal or he will go out of business.

A $20,000 car costs the dealer about $18,000. He can show you the invoice if you don’t believe him. But what he does not tell you is the factory will pay him $2,000 when the car is sold. REAL cost to the dealer? $16,000.


[edit on 2/8/2009 by donwhite]

reply to post by ProtoplasmicTraveler



Nicely said. We do not need to bail out the banks. We can save the banks, at least most of them, by instead focusing our attention on those who owe debt to the banks. If you save the consumers, you will save the businesses, the jobs and the banks. To do this we need to make one wee change to our banking system. That would be to have a true central bank bank replace the Federal Reserve.

We need to cut the debt level of the US consumer. I don't care that it isn't fair, bailing out the banks isn't fair either, but without consumers spending mor ejobs will be lost and we willjust continue to circle the bowl. You could try to do it with rising wages, etc, but that is unlikely in these times, if anything the genral consensus is that the people losing their jobs were making too much to satrt with (I disagree). Ultimately much of the debt that consumers owe was originally borrowed from the Federal Reseve by the banks thenselves. The Federal Reserve created the money with bookkeeping entries or out of thin air. I say we wipe out our dedt with the Fedral Reserve and turn it into a nationally owned central bank.

So basically if you owe $100,000 to your bank, they probably owe almost $100,000 to the fed. You wipe out both balances, reduce the principal by $30,000 and throw in a 4% interest rate to boot. The settling bank would take possesion of this new much more secure loan and its business as usual for the bank. You keep the central bank rate at a low fixed rate (1-2%) so the banks can continue to make money. All it takes is eliminating some fictional money originally created from thin air by the fed. Same thing with new loans - 4% rate, maybe with some small adjustments for credit risk. To keep from infaltion/deflation the central bank would raise/ lower reserve requiremnts instead of changing interest rates

Many feel this would be inflationary to a large degree. I say it would not be. We would be eliminating an awful lot of money from the ledgers. With this debt gone, the ability to pay our other creditors(foreigners) would increase leading to a stronger dollar. You would also have more stringent rules on consumer loans so that this would not happen again.

Alternatively, you could create a goverment bank to buy all these loans and then modify them, getting the money back over the next 30 years or so. But under the current system you would have to incur much debt which would be inflationary.

Wipe out the fed, wipe out the loans and start over. Big bang away Mr Obama,you know what you need to do.

reply to post by donwhite

The Big Boys knew you can’t run a business that way. So they cut the Dealer’s Cost in half. Car magazines now had to post the new dealer cost figures. But in the fine print, was DEALER HOLD BACK of DEALER INCENTIVES as it was variously called.

The Dealer Hold Back is 2.5% and is line itemed on the invoice as a Wholesale Finance Credit. Memo is 5%. A manufacture's employee can buy a car out of a dealer's inventory at line 310 invoice cost, minus the 2.5% wholesale finance credit minus the 5% memo money. That is dead cost.

Each dealer is given a production quota on a monthly basis that if they hit or exceede could earn them an overide incentive of anywhere from 500.00 per unit to 5% per unit depending on the production incentive set for the dealer.

So a volume dealership can in theory make money on a car even selling it at dead cost.

Most dealers make an average of 1,200.00 per transaction on new cars and around 1,800.00 on new trucks. They average around 3,000 on most used vehicles. Dealers make front end money of the vehicle itself, and back end money off of financing and after market products added to the sale. The averages are comprised of front end and back end profits being combined. A dealership might actually loose money on the front end of the sale and make a significant profit on the back end of the sale off the financing, extended warranties, service plans and accessories that make loosing money on the front end of the sale attractive to them.

Right now dealer floor trafic is down about 25% and many clients with good credit scores can no longer obtain financing. It is the tightening of the credit markets that are limiting sales of foreign and domestic cars alike.

Thanks for the great post.

reply to post by ProtoplasmicTraveler

The Dealer Hold Back is 2.5% and is line itemed on the invoice as a Wholesale Finance Credit. Memo is 5%. A manufacture's employee can buy a car out of a dealer's inventory at line 310 invoice cost, minus the 2.5% wholesale finance credit minus the 5% memo money. That is dead cost. Each dealer is given a production quota on a monthly basis that if they hit or exceede could earn them an overide incentive of anywhere from 500.00 per unit to 5% per unit depending on the production incentive set for the dealer. So a volume dealership can in theory make money on a car even selling it at dead cost.

Thanks for bringing me up to speed! (I have not dealt in cars since 1990). I don't see how the Government under anyone could possibly let the American auto industry slide down the drink without a real effort to save it.

reply to post by ProtoplasmicTraveler

Thank you so much Professor, I always so appreciate it when you can share your insights, vast knowledge and observations in the ever so polite and cordial way you do with friend and respected foe alike.

Thank you also for your kind words. I appreciate it very much.

reply to post by defcon5

Then you have never worked around a hardcore union my friend. These abuses are not the employees choice all the time, because many are actually union rules. For example, yes playing cards half the day is a personal choice, but flagging equipment INOP because it was handled by someone non-union is a union rule. It does not matter to them what it costs to company, the union rules come first to them not the company. Then you add the other abuses that they can get away with on top of that, and you have a perfect storm of waste.

Actually, as a professor at a 4-year state college, the faculty was union. I did not join, because I do not believe that professional people should be union, but because the state was a "fair share" state, I still had to pay 93% of the union dues each year. Of course, the union was a joke, as the only "negotiating" they did was to accept the 2% raise each year for 9 years. Yes, the union did have some ridiculous rules, which I ignored, because I was not union. For instance, professors were not allowed to teach 3 courses in a row, without a break in between the classes. I ignored that rule, as well as the rule that said we only were required to have one office hour per week for each 3 credits that we taught. In addition, the union said that professors could refuse to overload their classes, which I also ignored because it would have hurt students trying to get into my classes, which were always filled. A few of the union professors actually also allowed overloads, but most of them didn't. The point is that it is up to the individual to decide whether to play the "union rules game", or be reasonable, whether you are a professor or an auto worker. Some of the rules I believe to be ridiculous, but others may have a good reason for their implementation, such as safety concerns if an unauthorized person tries to fix a machine. I don't wish to debate individual rules, but the point is, that all work is honorable, and we should not criticize individual workers. If there is a problem with work ethic, then it is the managements responsibility to address those issues. Things did not get the way they are, because of the worker. In any negotiation, it takes two sides to come to an agreement, and somewhere down the line, somebody dropped the ball.
I had several work contracts at Chrysler, and I found the workers there to be quite responsive and hard working. I never had a problem with anyone there, as far as them doing their part of the project. Are there poor workers in the auto industry? Of course, just as there are poor workers in any organization, but there also plenty of good workers in those organizations.

reply to post by ProtoplasmicTraveler


Excellent post! At first i was skeptical at bailing out the auto industry, cnn said that the industry has around 2 million employees, but they do give or take a few 100,000, but then realized the effects of them going out. It would have a mass ripple effect, many businesses rely upon the manufacturing and sale of cars.

At least Ford is trying to stick it out!

reply to post by cenpuppie

Excellent post! At first i was skeptical at bailing out the auto industry, cnn said that the industry has around 2 million employees, but they do give or take a few 100,000, but then realized the effects of them going out. It would have a mass ripple effect, many businesses rely upon the manufacturing and sale of cars.

The frozen credit markets are already having a crippling impact on auto sales which already is rippling into a dozen related industries on main street from the local ad agency and news paper, to truckers, mechanics, restuarants, charities, civic orginizations, customizers, niche lenders, tow truck companies and many others.

One thing I fear many people don't fully appreciate is the fact that the powers that be would like at the very least a North American Union and a new currency along with it.

The powers that be through the media have been encouraging Americans to dislike American things from cars to politicians. We literally are being encouraged to give up on our own country and ourselves in the process of all this.

Funny example of how this works. Earlier this week the power suddenly went off in my tiny apartment building. The building owner had forgotten to make the payment on time. An excitable neighbor got home from work to find out that the power was off, and that the building own was unavailable to her to explain why and when it might be turned back on. She angrily questioned myself and two other neighbors if we had paid our rent on time. Since the owner wasn't available to rail against she was simply looking for an alternative and convenient target to vent her anger upon by imagining someone present might be to blame instead of investigating and waiting to blame the proper person.

More and more we are being encouraged to blame the wrong parties and to punish them to a very detrimental expense to all of us in the process as the real culprits go unidentified, unaccountable and happily on creating their mayhem unblemished by their actions.

I could understand why the neighbor was so angry. I could understand why she wanted someone to take it out on right then and there.

I also understand that her actions were counter productive, fruitless and damaging to herself though.

Sadly she didn't.

Well, until I explained it to her.

We have to help others up, each other up, not push or pull anyone down at a time like this. If we can't find ways to support America and have pride in it and faith in it's abilities and potential then surely we are going to go the way of the do do bird.

Thanks for your post.

reply to post by ProfEmeritus

Thank you also for your kind words. I appreciate it very much.

You are most welcome good and wise Professor. I have a funny feeling you share all the wonderful things you do and try to help the way you do for thanks alone.

Thanks that is certainly been earned and gratefully and respectfully given.

Thanksgiving, should not just be a holiday the last Thursday in November!

reply to post by donwhite

Thanks for bringing me up to speed! (I have not dealt in cars since 1990). I don't see how the Government under anyone could possibly let the American auto industry slide down the drink without a real effort to save it.

You are most welcome.

I must confess since the passing of the Patriot and FISA acts I no longer have any faith that the government is even remotely serving or considering the people of this nation anymore. I would not put anything past them at this point.

I might be getting too paranoid though in my old age. I am beginning to suspect Ron Paul is now being groomed to be the next President as he gains more and more mainstream media cautioning the impending collapse of the dollar and the only way to save the system is through sucking it up for a good long while and eating humble pie. Is this the next step the elites actually want? Or is it working against them? I am not sure. As I sadly have said. I am loosing all faith in the government.

I do know 1 in 7 Americans that is employed is employed in relation to automotive manufacturing.

GM and FORD will make it even without a dime. Chrysler is doomed I fear unless Lee Iacoca wants to work his magic spell one more time.

What has happened to this country?

reply to post by Anonymous ATS

We need to cut the debt level of the US consumer. I don't care that it isn't fair, bailing out the banks isn't fair either, but without consumers spending mor ejobs will be lost and we willjust continue to circle the bowl. You could try to do it with rising wages, etc, but that is unlikely in these times, if anything the genral consensus is that the people losing their jobs were making too much to satrt with (I disagree). Ultimately much of the debt that consumers owe was originally borrowed from the Federal Reseve by the banks thenselves. The Federal Reserve created the money with bookkeeping entries or out of thin air. I say we wipe out our dedt with the Fedral Reserve and turn it into a nationally owned central bank.

Some great insights and suggestions anonymous poster! It sounds like a great plan to me.

I am not sure though if we can rely on the good President Obama to facilitate this though. Presidents who upset the bankers seem to develop extra holes in their head that leak bodily fluids profusely!

I suspect this is why we always end with Presidents that have no head!

Excellent post thanks so much for sharing.