The Big Lube Job

Even with oil dropping below $67 a barrel, USA Today reported: “Almost 600 of the about 20,000 U.S. new car dealers have shut their doors this year, and an additional 2,000 will close within 18 months, predicts Mark Johnson, president of a Seattle consulting firm that helps auto dealers buy, sell or merge operations… The auto industry overall supports one in 10 U.S. jobs, according to the Alliance of Automobile Manufacturers. Dealers alone employ more than 1.1 million and generate nearly 20 percent of retail sales in most states.”

Broadcasters count on various segments of the auto industry for over 25% of their revenues, and we know ad sales are plunging lower than Madonna’s neckline as media and entertainment industry cutbacks are rising faster than her hemline. GM is talking with Chrysler about merging, and corporate earnings reports across America came out in the last few days showing a nasty third quarter. The market fell accordingly, and we get to look forward to the reports for the fourth quarter, which have to be much worse, in January.

The problem – tight money – has frozen the consumer-based economy at every level, not even looking at the plight of the real estate markets. USA Today addressed the automotive credit market with this stunning assessment: “Even people with good jobs feel poorer and less confident to take on years of payments for a big purchase. Those who still would are finding it harder to get credit - General Motors credit arm GMAC now requires a credit score of 700 or better for a car loan.”

And as bad times and bad earnings cause corporations, particularly financial institutions with possible default liabilities, to hoard cash (even borrowing at a higher rate and buying U.S. Treasuries at a lower rate – effectively a negative interest rate) to cushion expected and unexpected losses and liabilities, durable goods (stuff like cars and appliances) are not selling (no credit!), orders for replacement goods are falling, and lay-offs are rising as overtime is a dream gone by. Cash is truly king!

But the federal government is still hell bent on fixing stuff at the top, as Treasury is now consumed with supporting (bailing out) short term debt from money market mutual funds to the tune of $540 billion, this after their wonderful infusion of cash into the financial institutions at the top. We know the banks are not going to open up lending to us chickens until they believe that the bottom has been reached. Want it from the horse’s mouth? "We're not going to treat [the money from the federal government] like a windfall and back off of the measures that we have under way to get the company fit," Citigroup Chief Financial Officer Gary Crittenden stated at a recent public presentation.

And no one in the financial sector, I mean no one, believes that all of the markets have hit their lowest point yet. When these bad boys are spending money and not hoarding it, they are buying out competitors (consolidation) or adding cost-saving “bolt-on” acquisitions that solidify their balance sheets. What they are not doing is releasing money into the lending markets that might just save a payroll or two!

Let me put this simply: those of us in the middle and the bottom are going to lose our jobs, watch our homes vaporize and our incomes fall because the big boys on top are hoarding their cash for a rainy day. The rainy day? When we lose our jobs, have our homes vaporize and our incomes fall off the cliff. Government? Are you out there? Hello?! If you give any more top level bailouts, the companies are telling you they'll hoard the cash or just get fatter! So don't give them any more money! Put that funding into the local markets, the local banks. Wake up!

I’m Peter Dekom, and I approve this message.