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Letter to the Editor
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This article originally appeared in the May 2009 Issue of INSIGHT

Fix It Right!

Well, as I put pen to paper today, the word on the Web is that Chrysler will file for bankruptcy after all. Apparently, talks with a small group of creditors fell apart just one day before the government deadline for the automaker to come up with a restructuring plan.

Bankruptcy does not necessarily mean that the third largest vehicle manufacturer in the U.S. will shut down. Chrysler is still expected to sign a partnership agreement with Fiat, the Italian company, within the next few days, as part of its restructuring plan. What a Chapter 11 bankruptcy filing will do is to allow a judge to decide how much Chrysler's creditors would get.

This is going to be a very bumpy ride for all concerned - automakers and their employees, parts and equipment suppliers, dealers, auto workers, repair facilities, the American people, the government, international marketplaces, etc., etc.

In short - whatever happens will have global impact. Let’s hope that all sides at the table in Detroit will get the fix right.

Consumer spending fell more than expected in March after two straight monthly gains, and a record number of Americans lined up to draw jobless benefits. According to the Commerce Department, the number of people continuing to draw unemployment benefits jumped to more than 6.27 million, the highest on records dating back to 1967. I think that we will see some improvement by the end of summer. It took a while for our economy to go off track, and there certainly will be no easy, quick, or painless fix.

The national dealer groups that we track, in a pleasantly surprising turn of events, actually sped up into positive numbers, except for poor Sonic Automotive, which crept upward slightly, but not enough. AutoNation’s per share price posted a nearly 50 percent improvement over its New Year’s Day price, the highest the stock has climbed in two years. CarMax and Penske Automotive Group each improved by about one-third YTD on Wall Street.

Investors in AutoNation, CarMax, and Penske are betting that these national car dealership groups will gain in some markets after the anticipated closings of smaller, independent dealerships after the shakeup in the Motor City.

As for our insurer stocks, Allstate continues to see red this month. The insurer’s per share price of $24.38 is off its beginning of the year mark by over 26 percent. Progressive, on the other hand, has finally moved into black ink territory, up almost five percent YTD.

Collision repair facilities need to be extremely frugal throughout the summer. Many vacations across the country are getting cancelled as consumers tighten their belts. People who sit around in their backyards watching burgers cook on their grills do not need collision repair work.

-Charles Baker-

 

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