AN OPEN LETTER TO THE AUTOMOBILE MANUFACTURERS

Dear Sirs, I am in receipt of your request for fifty billion dollars to help you recover from the last few years of down business activity. Before I can act on your request there are just a few little things that might need further clarification.

I have been in or around the automobile and financing business for a little more than forty years and have seen many changes in that time. I remember the first time I saw a contract for twenty-four months. I thought who would finance a car for that long? I remember the first time I saw a car payment of over one hundred dollars. I thought who would take on a car payment of that amount? Well as I said things have changed.

It seems to have started when the price of vehicles began to grow at such a rate that normal financing was not sufficient for the majority of buyers. What was your response? You just raised the price even higher but you began offering questionable financing schemes to lengthen the term of that financing. All the major banks went along with the program. First it was thirty-six months then it grew and grew. Now it is up to seven years or longer. By golly it was successful. People could buy their new cars with all the fancy gadgets and still keep their payment down to a satisfactory level. Everything was just great. What could go wrong with this deal? I am about to tell you what could go wrong with this deal.

The other shoe began to fall. People who for years had traded cars every two or three years found out when they attempted to trade that they were upside down in their current cars. They owed more on the trade than it was worth in the market. What was your response? Why you just financed the minus equity into the new contract and extended the term even longer to keep the payment down. What a great solution. The factories kept on rolling out new cars at bigger and bigger numbers. Everybody was happy.

Oops, another shoe was about to fall. People then found that in order to trade their car, they had to pay on it for about four to five years instead of their normal two to three. Many of these cars then had excessive mileage and were in such disrepair that they were worthless. For a time your rebate scheme helped people with their minus equity situation, but as things are want to do, the problem only grew larger.

So here we are, unhappy people driving worn out cars but still paying on them. Trust me they would love to buy a new car. Your ads are working. People see the new cars and want to buy. The problem is that they can’t. The new car dealers are sitting on multi-million dollar inventories of un-sellable merchandise. Their flooring costs are going through the roof. Many of them will cease to exist as time goes forward.

So what is the answer? Is there an answer? While there are no letters after my name to identify my intelligence, I do have some thoughts.

Through the rebate and financing schemes you have been using, you have borrowed the car buyers of the future three or four years. They are now out of the market. You need to face that. The U.A.W. needs to face that also. Leasing schemes will not bail you out either. You need to pull in your horns and cut back on you expectations. As the old farmer once said, (I’ll clean this up a bit) you have used your feed trough as a toilet. Secondly, if you are going to finance automobiles for five or six years, they need to last that long and still have some value at the end of the contract. They need to be functional for two or three hundred thousand miles. Finally, you need to forget rebates and just bite the bullet and reduce the price of your product to a more satisfactory level. If you cannot, then cut out some of the frills and gingerbread. Just offer a serviceable product and when you advertise, advertise the price, not a phony lease payment.

Seems simple huh? Oh and concerning your money request, I think I’ll pass at this time. Helping you pay for your mismanaged excesses seems a little un-American to me. Good luck on your future endeavors.

Cordially,
An American Taxpayer

Ron Scarbro October 27, 2008