GM, now run by the United Auto Workers, counts a car as sold when it is loaded on a truck to take to a dealer. Once at the dealers it will sit on the lot on “floor plan,” with the dealer paying a low rate of interest to have cars in stock.
All that is all well and good – when demand keeps up with supply. But when supply far outstrips demand, the dealer is suddenly in trouble. While the monthly interest on one car is not that great, interest on 600 cars is disastrous. Add the cost of a second lot to take care of the increased inventory, and default is an ever present possibility.
GM has been “protecting the employees” by keeping the production lines going even though demand is down. General Motors did that once before, in 1930 and ’31. The result was disastrous.
I don’t see the outcome as much better now. So expect a major selloff of 2012 year model inventory when the ’13’s start arriving. But this is hardly the economy to adopt a long term debt.
So I also expect a lot of dealerships changing hands this fall. Changing hands, or closing. Either way will be bad for the UAW rank-and-filers whose future has been endangered.