For years, Democrats outside of Michigan tried to coax Detroit into making more fuel efficient vehicles. The automakers, the autoworker unions, Republicans, and Michigan Democrats all fought those efforts tooth and nail. Successfully.
This is what their success looks like today:
General Motors Corp (GM.N) posted a $15.5 billion quarterly loss on Friday, as North American sales dropped by 20 percent and plunging prices for SUVs prompted deep charges for its auto finance business.
GM shares tumbled 6 percent in reaction to the automaker's announcement of the deeper-than-expected loss, the third-largest quarterly loss in its history.
The No. 1 U.S. automaker also burned through $3.6 billion in cash in the quarter as it reduced inventory of slower-selling vehicles in its slumping home market.
GM ended the second quarter with $21 billion in cash and $5 billion in credit facilities. It said it had provided notice in July that it would draw down $1 billion under a secured revolving loan facility.
It's going to get worse, too. While demand for SUVs and light trucks has collapsed, there are still lots of people out there with leases, and they're turning their trucks in. And given that no one wants trucks anymore, GM is left holding the bag.
On Thursday, GMAC LLC, GM's former financing arm, was forced to write down the value of the GM's lease contracts because of the slumping value of the carmaker's big SUVs.
Under lease contracts, automakers and their finance companies rent vehicles to consumers and sell the used vehicles when the leases expire at wholesale auctions.
But the collapse in demand for SUVs this year has been accompanied by a steep drop in their resale value as consumers flock to more fuel-efficient passenger cars.
The resulting drop in resale values on SUVs prompted a $717 million charge by GMAC and bigger subsidies by GM, which retains 49 percent of the finance company after spinning off the remainder to Cerberus Capital Management.
Too bad Detroit resisted making fuel efficient cars for so long, huh? Now, all those sales are going to the Japanese car companies who innovated in that space. This was all avoidable.