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GM cuts off their nose

Friday, August 29, 2008, 8:24 AM

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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