Retail Sales Down, GMAC Gets Nod To Become BankThere was no ho-ho-ho for retailers this holiday season. Despite slashing prices before Christmas, U.S. retailers received lumps of coal in their stockings, as sliding sales across several key areas of consumer spending showed consumers weren't in the holiday spirit to buy.
According to a report by MasterCard, total retail sales, except for autos, dropped by 5.5 percent in November and nosedived 8 percent in December through Christmas Eve. The SpendingPulse unit of MasterCard shows that other than gasoline sales, the overall retail sales fall was less precipitous, falling 2.5 percent in November and posting a 4 percent drop in December. The sharp fall in sales is blamed on a 40 percent drop in gas prices over 2007. Online sales dropped less, posting only a 2 percent drop in sales.
A major contraction in consumer spending was much worse than economic analysts had predicted, with sales in luxury goods, including jewelry dropped by 34.5 percent.
Retailers including J.C Penney Co. say they will hold their biggest post-Christmas sales ever, with drastic price cuts. Other retailers from Children's Place, Bloomingdale's and Macy's have brought in spring merchandise to lure shoppers to spend.
As U.S. and world economies are in recession, consumer spending is frozen, and only essentials are being sold. The International Council of Shopping Centers cut its December forecast and says this will be retailers' worst November/December season on record. Bad weather in many areas of the country last week kept many shoppers away from stores, only making matters worse for retailers.
GMAC Gets Bank Holding Status
General Motors' lending arm, GMAC, had an early present on Wednesday when the Federal Reserve approved its bid to become a bank holding company. GM is days from getting its first installment of a $9.4 billion loan from the federal government.
The approval of GMAC to become a bank holding company helps GM car dealers who rely on GMAC for car financing. The credit crunch had threatened dealers' ability to make loans to car buyers. GM dealers use GMAC to finance about 75 percent of inventory. GMAC handled loans for 35 percent of GM's 2007 retail buyers.
The Federal Reserve used its emergency powers to grant GMAC's conversion, saying the current unsteadiness in financial markets and the impact that GMAC has on GM's ability to operate as reasons to take this action. GM stocks were up 15 percent before trading opened on Friday on the news. GM shares lost 87 percent of value since the beginning of the year and was the worst performer of the 30 companies on the Dow industrials.
GM and Cerberus are to relinquish control of GMAC to comply with federal rules on who can own banks. GM had owned all of GMAC until 2006 when it sold a stake in it to the Cerberus-led group. GMAC had struggled to raise the needed cash to qualify as a bank holding company since May. GMAC had cut financing for consumers by about 90 percent and banks have not taken up the difference. Earlier dire predictions forecast that if GMAC did default that 40 percent of GM's dealers would be forced out of business.