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US car industry on the ropes « Previous | |Next »
November 21, 2008

Unlike Australia the car industry in the US is having trouble getting government handouts----an auto bailout of $25 billion--- even though unemployment continues to rise. There is not sufficient support for a rescue plan in Congress despite the Democrats being sympathetic to such a subsidy and the car companies warning that the industry faces a “catastrophic collapse” if the politicians didn't fund them. The problem is that the car companies have given little indication how it plans to restructure the industry for the future.

MoirUScarindustry.jpg Moir

In the US the current argument is where is the money going to come from. Democrats have demanded that the White House and the Treasury carve out $US25 billion ($39 billion) in funding from a $US700 billion finance industry bailout to support the automakers. The White House has refused and called on the Senate to allow the industry to use $US25 billion in already existing Energy Department loans.

The problems of the US auto industry are of its own making. As homeowners borrowed against their homes to buy ever bigger toys, the companies responded by building ever bigger gas-guzzlers. When the Japanese maker Toyota introduced a hybrid car combining an electric motor with a petrol engine 11 years ago, the US companies were in denial and had to play catch up. As recently as January, GM's vice-chairman, Bob Lutz, was telling journalists that global warming "was a crock" and hybrid cars "make no economic sense". US manufacturers were losing customers, who deserted them on grounds of quality and model choice as they shifted to smaller, more fuel-efficient cars.

The Big Three's market share has fallen from 66 per cent in 2001, to 47 per cent. Of the three, Ford is the only company assured of surviving next year without the bail-out since it arranged financing ahead of the credit freeze.

The GM bailout should be more than a hedge against job losses, it's a way to upend the political economy of climate change and force the auto industry into a constructive posture. If so then bailout" is probably the wrong word. Unfortunately the message from the Big Three that they are well advanced in restructuring and cost-competitive with, or superior to, their foreign rivals were greeted with scepticism by many in Congress.

| Posted by Gary Sauer-Thompson at 5:48 AM | | Comments (7)
Comments

Comments

US car companies have been more or less bankrupt for years. Now that it's become common knowledge, they are doomed. There is no way consumers will have confidence in a product if they fear the manufacturer might not be around in a year or two; increasingly they'll buy foreign, used car values will drop, and a self-perpetuating cycle of declining sales will eventuate.

See also: Mitsubishi Australia, or British Leyland in the UK for that matter.

Rumour has it that there will be lots of cheap new and used cars around next year.
also,2 major players in the scrap metal industry appear to be colluding and are refusing to pay for old cars in a bid to bring the prices down. I expect the ACCC will be on their case soon.

Ken,
it is a long way from the time when the health of General Motors could be equated to the well being of America itself. What is good for America is no longer good for GM.The car makers have fought for years against Congress' attempts to bring in tougher fuel-efficiency rules. Congress has grown weary of bailouts top address the car makers' short-term cash flow problems.

Les,
the problem may well be getting finance to buy the cheap new cars.

Ken,
this article in Sydney Morning Herald makes an interesting point:

Last month GM's sales [in the US]fell 45 per cent; Chrysler's 35 per cent and Ford's 30 per cent. Honda and Toyota sales fell 23 per cent, half the size of GM's collapse. While latest figures show sales down across the board, SUV sales are down by up to 66 per cent while small and mid-size car sales - where the US makers are out-performed by Asian producers - are down by 23 per cent.

It says that Australia is not quarantined from GM's pain.
Its plant in Elizabeth, South Australia, will shut for five weeks in the first quarter of next year, reducing output by 15,000 vehicles. And that may not be the end of it. Australia is GM's base for producing non-premium, rear-wheel drives. An industry analyst for CSM Worldwide, Anuj Patel, says that although GM's Holden arm was assured of continuing production of the Commodore, which is exported to the Middle East, its production run may decline as plans to sell the Commodore in the US, rebadged as a Pontiac G8, have been hampered by low sales after a poor reception there.

Tough times ahead.

Les, the bottom has fallen out of the scrap metal market. It's not even worthwhile to steal copper from building sites any more.

Lyn,
Theres still a few bob to be made in recycled calcium. Meet you in Queen st at midnight. Bring a shovel.