Are US automakers doomed?

By: ispeculatornew
Date posted: 12.15.2008 (4:00 am) | Write a Comment  (1 Comment)

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This subject has been discussed over and over and there are certainly many different ways to view the issue. A little look back. US automakers of course had a huge amount of time to establish a big lead as they experienced the invention of the modern car and were for a long time the only producers in the most important market, the US.

Fast forward a few decades, and the US automakers started to get competition from Japanese automakers. Toyota and others had at first a big advantage in the way that they produced cars, they simply had a superior producing system and that helped the Japanese cars gets a US market share but not big enough for the US automakers to have financial problems.

As time went by and pollution effects became more known as well as with the increasing costs of gas, suddenly the cars made by American companies were not only more expensive but did not represent what the US consumers were looking for putting the GM and Ford’s of this world in double trouble.

Finally, a deep recession like the one we are currently living through was the final knock that has now caused the current problems.

Ford, GM and Chrysler (now owned by private equity group Cerberus) have now gone to the US government asking for a bailout of their own. They were hoping to get the money as easily as the financials had received it but that did not happen and they are now getting grilled as they try to defend their requests.

I have to say that I think it’s very justified for the government to ask tough questions in this case. Sure, a failing of these companies would have very devastating impact on the US economy but the problem is that giving money to companies who are not competitive because of both their costs and their products seems like just extending what seems to be inevitable, the bankruptcy of one or two of these companies. And so they have been asked to come up with specific plans to diminish their costs (including union concessions on pay) as well as plans as to how they will change to become more competitive.

One of the major problems of course if they do not get a bailout is that over half of US consumers have said they would not buy a car from a company under bankruptcy and so even the fear of that happening that currently exists is creating an environement even worse than other carmakers and when you see that even mighty Toyota is struggling, it is easy to imagine how tough it must currently be to make a few sales.

Last week, the congress voted and declined to grant the much needed bailout mostly on fears that the voters did not want it to get through. They did ask the unions to make important concessions which the unions did not accept… Now the President himself will need to get involved in seeing this bailout through.

Should they get the money? Absolutely, but only once they can provide a detailed plan on how they will become competitive, and not until that happens. If for some reason (such as unions) that is not possible, then no, I would not give the money to a company that will be asking for more a few months from now…

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