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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.
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.
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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.