Dear Mr. Berko: We have a $37,000 CD coming due at Wells Fargo. The teller introduced to a wealth adviser who advised us to invest $25,000 in an annuity, then $6,000 in General Motors and $6,000 in Ford. We know enough about annuities from reading your column to tell the wealth adviser to stick a carrot in his ear. We also know auto sales are going gangbusters and have never been as good. Will auto sales be as good in 2016? And if so, would Ford and GM be good to buy?
— T.M., Columbus, Ohio
Dear T.M.: The culture at Wells Fargo (WFC-$48) isn’t to be better or effective at what they do but to get bigger, to increase revenues, earnings and dividends every year. If WFC can’t, then CEO John Stumpf, whose white mane is slicked back like cake frosting and who made $20 million last year, risks being replaced, as do his acolytes. Customers must be careful when visiting a WFC branch because management developed a sales culture that can be injurious to your wealth.
I’ve never liked nor ever recommended Ford, Chrysler or General Motors (GM-$28). And like the airline industry, I will never invest in a sector in which a union can so easily bully management, close shop doors, stop production, require $10,000 signing bonuses and demand employees earn $65 an hour. That’s $130,000 a year. A cop in Florida with 20 years earns $53,000, and a quantum physics professor only makes $72,000. There are other reasons I’d not own either issue.
Today, there are millions of unsold and never-to-be-sold new and used cars squatting on dealer lots and packed tighter than pickles in a Mason jar. And if their prices are determined by supply and demand, Americans are grossly overpaying for their cars. The industry expects a record number of cars, probably 18 million, to be sold this year. Dealerships across the country are deluged with excess inventory. And to prevent this flood from sinking prices, the industry has “encouraged” lenders to lower their standards. According to the New York FED, more than $126 billion of auto loans between June and December of 2015 were made to borrowers with credit scores below 660. That’s called subprime because acceptable credit scores are 720 or higher. Some $81 billion of those were auto loans made to borrowers with credit scores below 620, and many of them were made for 8 years. Heck, my two dogs, Abbott and Costello, have earned better credit scores.
