Thursday, September 25, 2008

On The Abuses Of Credit

ViaDrudge, we learn that the nation's largest auto dealer --- a Chevrolet dealer in Arizona --- is closing its doors. Apparently, soft sales coupled with tighter credit has made it impossible for the business to stay open. Like many dealers, Heard Chevrolet "floor-plans" its stock, paying interest to GM for the privilege of displaying its automobiles.

'Can't say I'm surprised by this. My late grandfather was a Pontiac, Buick, and Cadillac dealer in Central Pennsylvania for more than forty years, from 1946 until 1 January 1987, when he sold his dealership in Sunbury to Blaise Alexander.

I vividly remember those dark days in the late 1970s, when Chrysler was begging for government loans to keep operating, oil prices were spiking, and sales of American gas-guzzlers tanked in the face of Japanese competition.

It was almost a certainty that, in a rather depressed area (economically), the only way that Schreffler Pontiac, Buick, and Cadillac survived was because of the fact that my grandfather didn't "floor-plan" his vehicles. Rather, he bought them from the manufacturer outright, and thereby avoided the costs of interest payments during economic downturns.

Don't be surprised if you see more car dealers going out of business in the next few months. And for the same reasons that we are talking about a nearly-trillion dollar bailout for Wall Street.

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