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Old 04-02-2019, 03:25 PM   #3
XDCX
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Join Date: Nov 2007
Posts: 14,869
Default Looking back 10 years ago...

I think to fully understand what happened to the 789 it's necessary to revisit the "perfect storm" that brought Chrysler and GM to bankruptcy.

In my assessment there were essentially three storms that collided and brought the auto industry to a sales level that wasn't sustainable and resulted in a massive hemorrhage of cash.

The first storm was the collapse of the U.S. Housing Market. After being fueled by years of easy lending "No-Doc" mortgages the market turned quickly as foreclosures started to drive down home values. In some markets the value of a recently sold home dropped by 50% or more and even people who could afford their mortgage were walking away from their negative equity. The impact to the auto industry was a massive decrease in personal wealth and an increased pool of customers who damaged their credit to the point they were no longer able to buy a new vehicle.

The second storm was a rapid spike in fuel prices - gasoline at $4.00+ was common. The impact to the auto industry was less disposable income for their pool of customers and a drastic decrease in demand for trucks and SUVs.

The third storm was a rapid decrease in available liquidity for banks and auto finance companies to write new auto loans. The debt markets were in crisis because it had become clear that bond ratings were worthless because many of those "No-Doc" mortgages were actually bundled with other mortgages and sold as AAA debt. The impact to the auto industry was a shortage of funds to write new loans and higher interest rates.
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