Car Sales Flushed Down

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[Genesis Of The Financial Meltdown]

Yesterday it was announced that domestic car sales crashed.

Ford car sales were down 40%; GM car sales were down 49%; and, Chrysler car sales down 55%.

This dramatic decrease in car sales was far worse than expected-but it proves that even the conversion of GMAC (General Motors Acceptance Corporation (GMAC)) to a bank with a $5 billion injection of money from the federal government cannot guarantee a profit. (Ford did not accept bailout money; and, Chrysler's finance figures are not available.)

GMAC lends to customers of General Motors. GMAC also funds mortgages. GMAC gained bank status in the fourth quarter of 2007.

GMAC had a profit of $7.6 billion in the fourth quarter of 2007-but this was entirely due to an $11.4 billion gain, the proceeds from a debt swap, which was necessary for GMAC to gain bank status and $5 billion in federal aid. In the third quarter of 2007 GMAC had a loss of $724 million.

But it is the financing of car sales that is most important. New vehicle financing originations tanked from $13.4 billion in the fourth quarter of 2007 to $2.7 billion in the fourth quarter of 2008. GMAC's auto finance division went from a profit of $137 million in the fourth quarter of 2007 to a loss of $1.31 billion in the fourth quarter of 2008.

This dramatic downturn in car sales is an excellent barometer of consumer sentiment to President Barack Obama's stimulus plan. Many Americans feel that President Barack Obama's stimulus plan serves the purpose of saving banks and Wall Street firms (which have now converted into commercial banks) and not saving the economy.
Yesterday, the Senate voted that consumers, who purchase a new car in 2009, can deduct their car loan interest payments and excise taxes (state taxes, such as sales taxes) from their federal taxes. This would save a consumer approximately $1,500 on a $25,000 car. Fiscal stimulus in the amount of $1,500 is a wasted effort. No rational consumer would purchase a car based on a 6% tax rebate.

Consumers won't even purchase new cars with $3,000 cash rebates, let alone the $1,500 discussed above-especially if they do not know if they shall have a job the next day.

Car purchases can be delayed. Old cars can be repaired. Used cars can be purchased. What America needs are jobs and these jobs are in China. Perhaps we should require Chinese lessons in first grade-after all China has $1 trillion in American government debt.

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