It's something I've been avoiding: writing about the desperate cries for help from the U.S. auto industry. Everyone knows by now that the 3 American auto manufacturers, General Motors, Ford, and Chrysler, have been pleading with Congress for at least $14 billion to keep themselves operating. Ford has enough cash to keep going through 2009 but is seeking help in case the financial markets do not improve in order to lend money in the future. GM and Chrysler are dangerously close to running to of funds, and will do so in a few weeks if emergency legislation is not passed.
The downturn in sales can likely be attributed to the rising gas prices of the last few years and the reliance of U.S. auto manufacturers on sport utility vehicles, which usually offer piss-poor gas mileage. The SUVs carried high profit margins and demand was high when gas was less than $2/gallon, but rising gas prices have seen consumers fleeing to fuel efficient vehicles from Japan and Germany. Because cars take years from drawings to production, automakers were unable to respond quickly enough to push new models into the marketplace. Competitors were able to release cheap, fuel efficient, fun to drive cars like the new generation Honda Civic and Mini Cooper, as well as fuel misers like the Toyota Prius, while the Big 3 produced cars that were too plain,didnt have interior materials that were not up to par with foregein rivals, or rides deemed to harsh for daily commutes (Ford Focus and Dodge Caliber, I am looking at you).
If these guys begged for money a year ago, I would say, let them go. Restructuring is greatly needed, and consolidation of too many brands is greatly needed. Some brands are dated and neeed to go (Hummer is dead in the water, too many are produced for such a niche market; GMC is a bunch of rebadged SUVs and trucks from other GM offerings; the Mercury brand is a money sink).
However, unemployment just hit 6.7%, and the last thing we need is a whole lot of people out of work. There are a lot of jobs at stake in Detroit and the surrounding areas, and a significant amount of layoffs could exacerbate the current economic crisis. Not to mention Wall Street's reaction to such news, which has been optimistic in the last couple of weeks due to anticipated passing of a bailout bill.
A lot of lawmakers in Congress have been hesitant of handing out money to the auto industry, after the debacle that was the financial bailout, a hastily dispersed trove of cash that has been handed out to many financial institutions without any real provisions as to how the money must be spent. Congress will be more thourough this time around, but the bill needs to pass soon, if only not to escalate the crumbling economy.
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Posted by: Cameron