The automaker’s specious bankruptcy argument …

Excerpted from WSJ, How Destructive Would Bankruptcy Be for Big Three?, December 12, 2008

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One of the Big Three’s main arguments for a bailout is that American consumers won’t buy General Motors and Chrysler cars if they are forced into bankruptcy. They would be tainted by a stigma and by worries that warranties and parts wouldn’t be available years down the road if the firms ran the risk of liquidation.

Consumer surveys support this view. One survey of 6000 consumers by CNW Research this summer found that 80% said they would abandon an auto maker if it were to file for bankruptcy.

Does the argument hold up? One way to test it is to look at consumers’ actual behavior. The risk of bankruptcy has obviously risen in the past few months. If bankruptcy is likely to drive consumers away, one might expect to see the market share of GM and Chrysler fall more precipitously as bankruptcy risks rise.

The U.S. market share of the Big Three has been dropping consistently for years, from 74% in the mid-1990s to less than 50% today. But there’s little evidence in the data so far that this longer term pattern has been dramatically amplified by the rising risk of bankruptcy.  

With the whiff of bankruptcy in the air …

Chrysler’s U.S. sales market share has actually risen from 8.7% in July to 11.5% in November, according to  Moody’s Economy.com.

GM’s market share has bounced around but hasn’t dropped below levels hit earlier this year. 

Ford, which isn’t facing an immediate cash crunch, has picked up market share too, rising from 14.2% in July to 16.5% in November.

Of course, sales have been propped up by  fire-sale deals and aggressive fleet sales.  But, that’s not new news.

http://blogs.wsj.com/economics/2008/12/12/how-destructive-would-bankruptcy-be-for-big-three/

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Ken’s Take:

1. Is there anyone who doesn’t recognize that the Detroit automakers are hanging by financial threads?  The companies are bankrupt, they’re just not in legal bankruptcy proceedings. If they were, they’d at least stand some chance of restructuring themselves into healthy positions. The current government thinking stands no chance of doing that. 

2. As I’ve said before, they survey results are misleading.  Would somebody be more likely to buy a car from a financially healthy car maker?  Of course.  Would somebody prefer to by from one that is on the brink of financial collapse or one that is in bankruptcy proceedings?  I bet that would be a statistical tie.

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One Response to “The automaker’s specious bankruptcy argument …”

  1. Now, it must be ok for the automaker’s to file for bankruptcy … « The Homa Files Says:

    […] As I said then, “the survey results are misleading.  Would somebody be more likely to buy a car from a financially healthy car maker?  Of course.  Would somebody prefer to by from one that is on the brink of financial collapse or one that is in bankruptcy proceedings?  I bet that would be a statistical tie.”  (see https://kenhoma.wordpress.com/2008/12/16/the-automakers-specious-bankruptcy-argument/) […]

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