• The U.S. auto industry has been hard hit by the credit crisis.
o Carmakers can’t get credit to complete their restructurings and put new advanced technology vehicles into production.
o Customers can’t get credit for new cars and other purchases, and consumer confidence has fallen to an all-time low.
o Suppliers are losing business and can’t get credit to keep them afloat until the industry recovers.
o Dealers can’t get credit to finance inventory and other routine business needs.
• Prior to this crisis, the U.S. auto industry was aggressively and successfully restructuring.
o The industry has invested $10 billion in U.S. plants and equipment each year.
o U.S.-based companies have closed the productivity gap with leading imports.
o GM has all but closed the quality gap with Asian carmakers.
o New labor agreements will make U.S. manufacturers’ labor costs competitive with the transplants by 2010.
• GM has been in the process of building a winning auto company for the long term. These efforts are threatened by a severe downturn in sales and a sharp drop in revenue caused by a widespread economic and credit crisis.
o GM is focused on building sustainable success, not short-term results.
o New GM vehicles such as the Saturn Aura, Cadillac CTS, Chevy Malibu and Buick Enclave are getting great reviews from the experts and enthusiastic support from customers.
o GM is committed to leading in the development of advanced propulsion technology, including breakthrough technologies like the Chevy Volt extended-range electric car.
o At the same time GM has been creating these award-winning vehicles, the company has been taking tough action to cut costs. In fact, since 2005, GM has reduced structural cost in North America by over $9 billion. And more recently, GM has outlined plans to enhance its liquidity position by $20 billion through 2007.
o GM has been streamlining its U.S. operations. It has reduced its U.S. salaried workforce from 44,000 in 2000 to 32,000 in the fall of 2008, and its hourly workforce from 132,000 to 64,000 during the same period.
o In response to the recent economic crisis, GM is further tightening its belt. The company recently took additional actions to reduce salaried employment costs by 30 percent, eliminate raises and discretionary bonus for executive and management employees, and suspend the 401k match for salaried employees.
• The long-term security of the U.S. requires a strong auto industry and strong domestic R&D programs.
o The auto industry will play a critical role in diversifying our energy sources away from imported petroleum.
o The U.S. should not trade its dependence on imported oil for a dependence on imports of critical technologies – batteries, biofuel technology, advanced internal combustion engines and transmissions, hybrid systems, and fuel cells.
o The U.S.-based auto industry is second only to the semiconductor industry in R&D spending — $12 billion last year alone.
• Federal assistance to help the U.S.-based carmakers through this historic downturn is a good investment in America’s future.
o Potential cost for supporting loans to the industry would be a fraction of one year’s lost tax revenue should the industry collapse.
o Because of pent-up demand, the industry should recover quickly once the economy improves, implying a fast payback for loans and interest.
o A healthy auto industry is an engine for creating the jobs, the new technologies, and the global business growth that America needs if it is to remain a great power.
• What happens to the U.S. auto industry matters on Main Street.
o There are some 14,000 U.S.-brand dealers in cities and towns across the country , employing approximately 740,000 people, with a total payroll of some $35 billion.
o U.S.-based companies have 105 assembly and component plants in 20 states, including such “non-auto” states as California, Texas, Kansas, Louisiana and Maryland.
o The three companies purchased $156 billion in parts, materials and services, supporting jobs in all 50 states.
o The companies provide benefits for 775,000 retirees and surviving spouses, and provide health care benefits for 2 million.
• Automotive manufacturing is a 21st Century growth industry, and the U.S. needs to earn its share.
o A strong U.S.-based industry lets America benefit from global growth of one of the largest, most important industries.
o Less that 15% of the world’s population owns a car, so growth potential is significant.
o The industry sold 70.6 million vehicles globally in 2007, an increase of 13 million units from 2002.
o U.S. companies can compete: GM’s now sells 61 percent of its car and trucks outside the U.S., and continues to set sales records overseas.
o CYTD, GM sales in LAAM are up 13 percent, while sales in Asia-Pacific are up 7.6 percent.
o Motor vehicles and parts are the single largest export from the U.S., topping aerospace, medical equipment and communications.
• The collapse of the U.S.-based auto industry would be devastating. In just the first year:
o Direct, indirect and spinoff employment would drop by 2.95 million people
o Personal income would drop by $150.7 billion
o Government transfer payments would increase by $14.3 billion
o Social security receipts would drop by $21.1 billon
o Personal income tax paid would drop by $24.7 billion
• This is an auto industry crisis, not just a U.S. industry crisis.
o CAR assumes that a 50 percent drop in production by U.S.-based carmaker would cause a 50 percent drop in production at the transplants due to supplier disruptions and bankruptcies.
o A complete shutdown of the U.S.-based carmakers would also shut down the transplants for at least one year.
– GM was hemorraging money long before the credit crisis became a major problem this year. The credit ratings of GM and Ford were both taking substantial hits during the past few years, thus making credit more difficult and expensive for them to obtain.
– The critically acclaimed cars they have brought to market were not selling well even before the credit situation. Any by well, I mean without substantial profit-shrinking incentives and even then in substantial-enough volume to allow GM to maintain market share. There are many reasons for this, from inept marketing, a corporate structure with too many brands to support effectively, crappy dealers, to decades of ill-will and more.
– GM leadership completely failed to plan for a rise in gas prices and a resulting slump in SUV sales, something any undergraduate business student could have said would be coming at some point. As one example, the complete failure to design their newest European compacts and subcompacts to meet U.S. regulations means that they need years to bring them here rather than the months it could have taken (e.g. Honda Fit).
That said, I do agree it’s important to maintain this critical manufacturing capability here in the U.S. for many of the reasons mentioned above. Do they need a direct loan from the government or can a requirement of the bank bailout be that private loans are immediately made available by these banks to the auto manufacturers?
Are there other things that can be done, like asking the DOT and NHTSA to review the differences between U.S. and Euro safety and emissons standards so that manufacturers (all of them) don’t have to burn so many resources to meet differet standards. Seriously, it’s not like Europeans are laying dead in the streets from minor fender-benders… are the differences in regulations so great that they are material or are they simple due to bureaucratic inertia and “not invented here” shortsightedness? This way the manufacturers will be able to shift production of all of their cars to meet local shifts in demand (e.g. smaller cars in the U.S.) more easily.
Wow, such a wordy bunch.
Golly gee, the first points make it sound like a credit problem.
I say we eliminate all credit. Be paid up in full at all times; all the way down the line, from manufacturer to consumer.
A complete shutdown of the U.S.-based carmakers would also shut down the transplants for at least one year.
No way would the transplants allow their suppliers to go under if the debt3 go under. They will prop them up until they are back on their feet or until they get another supplier qualified to make the parts.
They forget that the transplants actually have made and are still making profit. They think everybody is in as bad a shape as they are.
There’s not going to be a complete shutdown of all three Detroit automakers. One may go out of business, but in doing so, it will save the other two (as much of the business from that company will go to the other two Detroit players). Plus, chances are the “good” parts of the failed company will be bought by somebody who will continue production of those models.
Well, if it is such a great deal, and their equity value is a little over 1.5B, then taxpayers should take it over for that.
Management, equity holders and the unions are gone, any appointed technocrat can do at least as good a job of running it, the jobs are saved at prevailing rate for unskilled labor.
Anything above equity is welfare directed at failed models, demographics, states, etc.
Taxpayers should not and will not stand for selective welfare, and should boycott these products if favoritism is shown to these people.
Don’t you just love how they play with horror scenarios.
1) As it was often pointed out, filing Chapter 11 doesn’t mean that the Bankrupt Three will completely vanish with every asset they have.
2) But even if they’re closed down entirely, that doesn’t change how many cars the market wants.
2a) Either the market is too small for the current output of cars. In that case someone has to die, because there’s simply not enough room for everyone and it would be best if the fittest (not the fattest) would survive.
2b) Or the market is big enough to support all the current players. In that case, it comes down to mismanagement. In that case others will fill the void. So it would hardly make a difference in terms of jobs, it’s just that they’d move from one carmaker/supplier to another.
A remarkable combination of whining and chest pounding.
The truth is: in a cyclical industry you need to have some reserves to get through a downturn. Toyota has that. Honda has that. Technology companies in Silicon Valley have that.
GM has not. It’s their own fault.
And there will be seven lean years, after the seven fat years…
I read that in some book somewhere.
And in today’s world, the other problem is that with the subvented leases and subsidized loans, every person capable of having a new car already does. Barely used cars are fetching buttons on the used car market. Aside from the repo issue, you can’t really sell too many discretionary cars anymore…you have succeeded beyond expectations, and now have too much supply.
So many points to debunk…where to start??
-by “customers can’t get credit” do you mean “we can no longer afford to toss money at people with abysmal credit scores that can’t possibly afford a new car?”
-by what meaningful definition has GM closed the quality gap?
-what were the sales figures for those “well received vehicles” such as the Aura, CTS and Enclave before the run-up on fuel prices?
-the Volt? Puh-leeze…it’s not even in production yet! And besides, with fuel prices down, a $40k wunder-car isn’t going to sell (never mind that Americans typically have short memories and will forget all of the pain of near $4/gallon gas in about two weeks…).
-what pent-up demand? Is GM expecting us all to run out and buy Cobalts and Aveos shortly? Guys, even when money was being given fast and loose, people weren’t beating down the doors to buy these dogs (come to think of it, they really weren’t beating down the doors to buy ANY of GM’s products).
-so if international sales are going up and up, does that imply that you’ve more or less given up on the American market?
Look, the company I work for is tied directly to one of the Big 2.8 (unfortunately, the one least likely to survive) and I’d hate to see more of my coworkers suffer. Having said that, I’m still not a huge fan of the American public being asked to give GM/Ford/Chrysler anything for decades of mismanagement. And does anybody really, truly believe that $25 billion will even scratch the surface? The three companies combined appear to be burning more than that at a very rapid pace. I don’t see how that sum of money will do anything to stem the losses they are experiencing and to turn the ship around.
It looks like GM is attempting Proof by Verbosity: http://en.wikipedia.org/wiki/Proof_by_verbosity
I’m tired of this unhinged ripple effect crap. “If GM goes bankrupt you will die in a nuclear war.”
The big 3 need to go Ch. 11 unless they can find a private market alternative. The government might (will probably) need to step in after that – but that fundamental restructuring is necessary.
The only way GM can survive is by getting rid of most of its brands and most of its dealers, so this attempt to form a lobbying alliance with the dealers is particularly offensive.
There are so many Watches here the numbers are getting confused! This should be Bailout Watch 174, and the previous article should be 173. You started counting up from Volt Birth Watch 115 instead of the last Bailout Watch. :-P
ha ha. The US automakers have wasted no time in building manufacturing plants in other countries, in obtaining parts from other countries, in using offshore IT resources…
How come the US taxpayers have to fund the bailouts (make no mistake- they’ve already received a bailout. Now they want more. Then when their sales are abysmal they will want more. and more. it will never end)?
Let China or Canada or Japan or India kick in on the bailout pool to those shameless welfare queens.
Make no mistake, the failure of the U.S. automotive industry would be catastrophic. No kidding. We simply cannot allow this to happen.
“…he failure of the U.S. automotive industry would be catastrophic. No kidding. We simply cannot allow this to happen.”
It has already happened. There is nothing ‘we’ can do.
Substitute ‘steel industry,’ ‘textile industry,’ “IT labor industry,’ ‘engineeering industry,’ and we can say we cannot allow those to fail. But they have over the last few decades. But the automakers have been complicit in all of these. What makes them immune to the failures they have abetted?
Auto industry jobs have been disappearing from the US for decades, courtesy of Detroit. Newer jobs in the auto industry are not from Detroit, but from offshore companies. Detroit has been doing nothing for us.
50 billion dollars to them of our children’s money every couple months will not change it, and will make all of us poorer.
Here in Canada both Honda and Toyota have there own “in house” parts suppliers, including Engines which Honda makes at there Ontario Plant, so here in Canada at least we dont have to worry about these makers not having parts even if you dont have them in the USA!
It’s the so-called “capitalists” (management and BOD) who have their hand out for gov’t dollars to protect them from the market and their own disastrous decisions.
To hand over billions to the same guys who got us in this position is absolute lunacy. Maybe the American auto industry is too big to fail; but if that’s the case they get a bailout on the conditions that upper management and the BOD are all FIRED.