In January we talked about GM and Chrysler, and the possibility of bankruptcy. Right now, it’s one down and one to go, as I believe a GM bankruptcy is probably just weeks away. GM is working on a June 1st deadline to eliminate $27 billion of bondholder debt and come up with a new labour agreement or they’ll be pushed into bankruptcy.
For six months now, there’s been a cry that we can’t let them go bankrupt, because it would lose a gazillion jobs and end car manufacturing. I said then, and it’s obviously true, that the fear tactics were and are nonsense. Major changes were going to happen – with our without a bankruptcy.
Even GM has started to terminate dealers, shutting down production for months at a time, and laying off people. That has nothing to do with the possibility of bankruptcy. It has everything to do with a business model that’s not working! When the foundation of your house is collapsing is not the time to put in new windows, or paint the deck.
GM wants to close one out of every six dealers in the U.S., and get from 6,000 down to 3,600 by the end of next year. In Canada, the plan is to go from 700 down to 300. They call it a dealer rationalization plan, and the termination letters are expected to go out the end of this month.
If you do have the cash to buy a new vehicle, it is critical that you hold off on your purchase for another month or so. If not, you may be losing out on a huge amount of money.
Right now, the U.S. House of Representatives has passed a junker rebate program, and it is now in the Senate for consideration. The program is designed to get old junkers off the road and supply a rebate of up to $4,500 towards a new vehicle purchase that is more fuel efficient.
If the trend of Canada matching U.S. programs holds true, buying right now would cost you a 20 to 30% first year depreciation, and you’d miss out on that huge rebate of up to $4,500.
The U.S. government claims this is to promote fuel efficiency. Don’t believe that – it’s purely to boost car sales. For anyone trading a pickup, they only need to buy something that gets two more miles to the gallon to qualify for the maximum $4,500 rebate. Even Hummers just need to be traded for something that gets five miles per gallon more. That’s not fuel efficiency – that’s a sales promotion.
If you’re in the market for a new vehicle:
• Hold off until this program is in place or there is a clear decision that Canada won’t match it.
• Pay cash for your new vehicle, or better yet, buy a one or two year old that has some warranty left to avoid the new car depreciation
• If you’re going to ignore the “pay cash” advice, never finance a vehicle for more than four years.
• Never ever make the buying and financing decision on the same day. You’ll need to know the rebate that’s available and compare it to the low-rate finance offer. More times than not, you’ll be better off, financially, taking the cash rebate off the price and financing it with the credit union.
Hold off, too, if you’re considering a one or two year old model right now. When the new program becomes available, it not only drops the price of new vehicles, it also drops the value of one and two year old models about the same amount!