Fancy a Chrysler ?

An hour after having received its 1.5 Billion dollars 0% loan from the US Treasury, Chrysler has pushed out an offer: 0% credit on all models. Will they ever learn ?

So let's try to get this right.

• Creditworthiness

The very problem that triggered the present crisis was the abundance of cheap credit, to everybody, including people with poor credit records. It seems that the lesson has not bean learned yet. Giving your clients a 0% interest on a loan so that they can buy your product, does not change anything at all: a loan is a loan, no matter the interest, you still have to repay the principal. And somethig tells me that Chrysler's clients might be broke.

• Blindness

Selling - sorry I meant dumping - all their cars on the market (what they are effectively doing) is not going to help the US auto makers. The problem they faced in the last five years are still there: poor quality vehicles, fuel inefficient, strong competition, high production costs... They seem not to have realized the fundamental reasons of their difficulties. A weak dollar for the last two years should have protected them against European and Japanese imports. It did not. Simply because the price was not the problem. The product itself was the problem.

• The credit mechanism
  

People seem to be excited at the prospect of null interest rates in the US. And probably soon in the UK. They do not seem to understand that it does not make much of a difference at all. Buying a car with a 0% loan today means that they are still going to pay it more than its face value tomorrow. Simply because we are entering a deflation era and every dollar they will have to pay back tomorrow, will be worth less than today. So every dollar Chrysler will get from its clients tomorrow for the cars sold today. will be worth less than today. The basic credit mechanisms imply that today's deals are tomorrow's profits or losses. In this case, it will inevitably be losses.

• They are all taxpayers

So the US treasury is giving money it gets from the taxpayer with 0% interest to Chrysler, so that Chrysler can allow the same taxpayer to buy a car with a 0% interest rate from its catalog. A car that he will have to pay with his own money since he is the taxpayer and therefore cannot be bailed out.
Does it make sense ?
From Chrysler's point of view, it seems everything makes sense these days. For the US treasury, maybe. For the Taxpayer certainly not: he is ultimately paying his car twice. And still has to pay his taxes, otherwise the whole thing will stop making sense for the US Treasury too !

So where is all this going to ? My guess is: straight to the wall. Will see in six months the disastrous results. I am glad I am not an American taxpayer though.