|Motor city could crash Obama's honeymoon|
The father of US industrial mass production Henry Ford, is famously misquoted as saying ‘you can have a Model T in any colour you like as long as it’s black’; it was actually available in assorted colours for most of its production life.
But 100 years on from his first Model T rolling off the production line in Piquette, Detriot, he would find it hard to think of any quote to adequately describe just how deep a hole the American automobile industry currently finds itself. For the three major players in the American market, GM, Chrysler and Ford are all running out of cash at an alarming rate and their very existence is being openly questioned.
The credit crunch could be the final nail in the coffin for an industry that for two decades has been fighting rising fuel costs and cheaper, more efficient foreign imports. The so called big three have been too slow in responding to their Europe and Far Eastern competitors and now find themselves on the edge of the abyss. In the first nine months of this year, GM sold 6.65 million vehicles when all their brands Chevrolet, GMC, Vauxhall and Buick are added together. That is about 400,000 vehicles fewer than Toyota, ending GM's 77-year run as the market leader in global auto sales.
When GM and Ford posted their latest quarterly results last week the figures make eye watering reading. GM spent $6.3 billion just to stay afloat over the last three months and will be out of business by the middle of next year if things don’t improve. Heavily indebted Chrysler is owned by the private equity firm Cerberus, so its financial health is harder to gauge, but bondholders say its situation is also dire. Ford burned through $7.7bn in the same quarter.
In October, GM's sales were down a staggering 45 per cent on a year ago; Ford was down 30 per cent and Chrysler fell 35 per cent. There is little reason to expect a rebound that will pull these companies back from the brink. So, this could be an important first test for President elect Obama as he may well be called on to balance free market economics against the survival of three American institutions.
The Democrat Congress has already pushed through $25bn of low-cost loans to help the big three fund new research and development of greener cars. Rumours suggest they’ve asked for $50bn more. The motor vehicle and parts industry currently employs 732,800 workers and the industry has one of the largest economic multipliers of any sector of the US economy. That multiplier means that 2.5 million jobs could be lost if one of the big three goes under.
A potential PR nightmare for any new President no matter how much good will they currently court.