Tags: Ford | GM | Detroit | bankruptcy

While Detroit Crumbles, Ford and GM Rise From the Ashes

By John Morgan   |   Tuesday, 23 Jul 2013 02:12 PM

Ford and General Motors are expected to report gushing profits from North America this week, where demand has pushed car prices higher, even if Detroit is sinking into a financial abyss.

The Detroit Free Press reported that essentially all of Ford's and GM's global profits are domestic, driven by low interest rates, affluent baby boomers and the popularity of new vehicle models.

"People complain cars are expensive, but they also buy the most expensive ones," said Jesse Toprak of TrueCar, which analyzes auto price data. "People are happy to pay more if they get more."

Editor’s Note: Put the World’s Top Financial Minds to Work for You

However, credit reporting firm Experian estimated that vehicle loans are getting longer, averaging 65 months in the fourth quarter of 2012 — the longest ever. And leasing is also increasing.

Both vehicle loans and leases from the Detroit automakers are lucrative for dealers. The Free Press said the result is "like a surfer's perfect wave."

The average transaction price for Ford is $33,272 and for GM is $33,218, the newspaper said, with the average price of pickups rising to $40,361 in June, up 2 percent from a year earlier.

TrueCar reported new vehicle prices are up 2 percent from 2012. "The stage is set for stronger growth for the rest of the year," predicted Robert Dye, chief economist at Comerica Bank.

The New York Times reported a federal judge overseeing Detroit's contested bankruptcy filing would hold a hearing this week to determine whether a lawsuit over city pensions by retired public employees can block the bankruptcy filing.

A lawsuit filed last week in an Ingham County circuit court claimed the bankruptcy filing is void because it violates the state constitution's protection of public employee pensions.

Detroit's $18.5 billion bankruptcy is the largest municipal filing in U.S. history.

Opponents of the filing claim Michigan Gov. Rick Snyder broke his oath of office by approving a bankruptcy that seeks to cut Detroit's huge pension debts.

"That's outrageous," said United Auto Workers President Bob King of the filing, the Free Press reported.

Detroit's problems are the result of poor city government, Harvard University economics professor Edward Glaeser wrote in his column for The Boston Globe. He noted that former Mayor Coleman Young had even used the power of eminent domain and tax subsidies to lure GM into building a downtown plant while other civic ills festered.

"Detroit's debt overhang doesn't just impose overly high costs on the city's now modest tax base. It also scares off new businesses. What firm wants to own part of that obligation?" Glaeser asked.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

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