Ford And GM Heading For Bankruptcy
At the current time, the US auto market is in a state of turmoil. With the after Covid shortages of vehicles now gone and the public buying vehicles at hugely inflated prices, dealers’ lots are now filling up with inventory. The one type of vehicle that is showing the biggest buildup of inventory, based on sales, is EVs. Both Ford and GM bet heavily on their future profits coming from EVs, only to see the market for them collapsing. And because both companies spent heavily on building EV infrastructure, they are relying on the huge price increases they put into place for their fossil fuel vehicles as the source of financing of that buildup. If the current scenario stays in place, both Ford and GM will be headed to bankruptcy soon.
When Biden became President in 2020, his administration placed tough new regulations on fossil fuel vehicles that could only be reached by automakers selling large numbers of EVs. Both Ford and GM saw EVs as an easy new source of huge profits because the government was backhandedly mandating that consumers had to buy EVs. Also climate activists lobbied so vigorously that government officials thought that the majority of the American public favored their approach. Well they were wrong.
The early supporters of EVs raced to purchase their new toys. And as the number of EVs on the road grew, the problems and shortcomings of EVs quickly came to light making the general public rethink their opinion of those vehicles. But this sudden shift in the consumers buying behavior left both Ford and GM stuck with costly EV production facilities and EV inventory both at the factory and dealerships. Instead of huge profits, both companies are losing billions of dollars on EVs. In one report, Ford announced that it lost over $100,000 per EV sold.
Where the real problem is now is that both automakers, raised the sticker prices on their bread and butter vehicles, the full sized pickup trucks. And what added even more pain to the equation was the huge spike in interest rates. When you combine both of these things together, the result is a large drop in sales of their most profitable vehicles. The American public is being crushed by the huge rise in inflation created by Biden’s spending priorities. Their debt levels are rising to historic levels making thousand dollar a month auto payments unaffordable. Sales are dropping.
But don’t feel sorry for both GM or Ford. During the covid created parts shortages, both raised their prices and in spite of much lower sales volume, both made a profit. At the dealership level, dealers added what they called “market adjustment” fees to the sticker price that allowed them to make sizable profits too. Both the manufacturers and the dealerships cared less about their customers. So now that the bottom is coming out of the auto industry, both are facing a backlash from their own customers because the customers realized they had been taken advantage of and are currently locked in paying on cars and trucks that are worth no where near the balances being shown on their loan accounts. Is it any wonder that the consumer is upset, when their loan balance shows they owe $60,000 on their loan for a year old vehicle that can now be purchased brand new for less.
But both Ford and GM have also boxed themselves into a corner by falling for the promise of huge profits from EVs. All that’s needed in order to push both companies towards bankruptcy is a recession, which many economists are predicting to happen shortly. And the longer Ford and GM go without being able to profitably sell EVs the further behind they fall both Tesla and Chinese automakers. None of this is pointing to a bright future for both companies. And the longer it takes both companies to come up with a solution to their EV sales problem, the weaker their financial foundation becomes.
As for the American consumer, they will also pay the price for this poorly thought out idea. The love affair the American public has had for full sized pickup trucks is about to come to a screeching halt due to affordability. They are also facing high inflation, huge debt levels and most likely job losses due to lack of demand that will make their lives worse off. What needs to happen is a huge market readjustment with the focus being on affordability. Otherwise, the future American auto market could look like that of Cuba with decades old cars still on the road.