Leland Teschler's Editorial: Car Buying in the Age of Bankruptcy

July 7, 2009
Does anybody want to buy a car from a bankrupt automaker? The answer may determine the future of the auto industry in the U.S.

Does anybody want to buy a car from a bankrupt automaker? That was something I pondered as I passed a GM dealership recently. The answer to that question may determine the future of the auto industry in the U.S.

So for the first time in my life, I pulled into the parking lot of an American car dealer to ask a few questions. (For readers who might wonder, I typically buy only used cars. So my visit to a new car dealer, American or otherwise, was unusual.)

If my experience was any indication, car sales people aren't sitting around waiting for customers. I wasn't halfway from my car to the showroom before Ed, a sales associate, came out to introduce himself. He quickly ushered me in for a talk with the dealership's owner and its general manager, Mark and Marc.

Was anybody buying cars from these guys? "Just look around," shrugged Mark. Floor traffic, while not shoulder-to-shoulder, was healthy for a Saturday afternoon. "The car business isn't great right now for anybody. But we are doing business," he said. "In fact, we are starting to be concerned we might run low on inventory because of plant shutdowns this summer."

Business at the dealership has actually picked up since GM's bankruptcy, the two say. "Once it happened, people realized the world wasn't coming to an end and that life would go on," Marc said.

Do automaker woes mean great deals for bargain hunters? The two were understandably reluctant to discuss pricing specifics with a guy who wasn't actually there to buy a car. But clues about average sales prices can be had from truecar.com and edmunds.com, auto research and shopping sites. Edmunds recently found that certain new cars are going for less than their year-old counterparts if interest payments on car loans are figured in. Their conclusion: "A shopper can actually save money by purchasing a new vehicle instead of a used version in some cases."

If TrueCar's historical sales data is accurate, the average sales price for some models sold in February and March was below dealer costs. That's not true for the past two months, though, as prices have risen even after GM's bankruptcy. For example, TrueCar puts the dealer cost of the Yukon SUV at $44,150 with particular options. It says such vehicles sold for an average of $43,497 in late February but more recently averaged $44,984.

To hear the GM dealers tell it, tight money is a bigger headache for them than hard-bargaining car buyers. "Because of the financing environment, people coming off leases right now can't afford a new car like the one they're turning in," said Mark.

Finally, Mark and Marc both snorted when the subject of cash-forclunkers legislation being discussed in Congress came up. Under the new law, drivers would get vouchers of up to $4,500 to swap their current wheels for something getting better mileage. "That's not going to help us," said Mark. "Look at the list of 'clunkers' that would qualify. People who drive cars like that don't buy new models. They buy used cars. Giving them a voucher won't change that."

As I eyed my own 100,000-mile-plus set of wheels in their parking lot, I had to admit he had a point.

— Leland Teschler, Editor

About the Author

Leland Teschler

Lee Teschler served as Editor-in-Chief of Machine Design until 2014. He holds a B.S. Engineering from the University of Michigan; a B.S. Electrical Engineering from the University of Michigan; and an MBA from Cleveland State University. Prior to joining Penton, Lee worked as a Communications design engineer for the U.S. Government.

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