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General Motors next?
GM lost a huge pile of money last year. They're probably losing a lot more this year... their "100th anniversary employee discount" smacks of desperation. GM's a DJIA company, and 4th in the Fortune 500; if they start to fail, shit's really going to go down.
The thing is GM used to make its money from GMAC - which is to say, auto leasing. If people can't make mortgage payments, what makes you think they can make car payments? GM was for all intents and purposes a bank that gives away cars like other banks give away toasters; but last year, they sold their majority stake in GMAC in order to get enough cash to keep themselves afloat. Which was probably the smart thing to do, anticipating people not being able to make their payments and all that. But their share price is the worst it's been in decades - and really, how many more companies can the Bush Administration bail out?
The thing is GM used to make its money from GMAC - which is to say, auto leasing. If people can't make mortgage payments, what makes you think they can make car payments? GM was for all intents and purposes a bank that gives away cars like other banks give away toasters; but last year, they sold their majority stake in GMAC in order to get enough cash to keep themselves afloat. Which was probably the smart thing to do, anticipating people not being able to make their payments and all that. But their share price is the worst it's been in decades - and really, how many more companies can the Bush Administration bail out?
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Banks weren't giving out auto loans on good to terms to people with no/poor credit. Due to housing boom a few years back, banks felt that if they had to foreclose, they wouldn't lose any money since real estate was gaining value so quickly. Hence, they started giving out mortgages with good interest rates to just about anyone. Except when everyone couldn't pay all at once, a flood of properties hit the market, the real estate bubble collapsed, and the banks are screwed.
Since cars pretty much always depreciate in value, they were never giving out auto loans as haphazardly as they were giving out mortgages. The general downturn in the economy does increase the number of people unable to make payments, but the problem isn't anywhere near as severe as the problem with mortgages where they were giving out questionable loans while over-valuing the collateral.
GM's primary problem is that the rapid rise in gas prices has dramatically cut the demand for SUVs and trucks, their bread and butter. Now they have to play catch-up with the foreign automakers who have been making fuel-efficient cars for years.
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GM will never be able to catch up. Their market cap and share price are in the toilet, and they still manufacture gas guzzlers - there's no way they can completely retool and reposition themselves in anything less than 10 years, and by then they'll be a footnote.
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