On the 18th of November, 2008 we wrote a feature entitled 3 becomes 1
about the auto industry's plight (See Below)
Not much has changed.
It appears that there are 2 courses of action for the North American
Auto Industry now.
- The US Congress can give GM and Chrysler a 'bridge loan' to let
them meet obligations in the near term and scale their operations
and products to the new demand cycles and needs. This will
require a Czar to tie the loan to action.
- Let GM and Chrysler fall into Chapter 11 Bankruptcy. If
this happens a Czar will be created by the courts and will manage
the creditors. The companies under certain circumstances, can
come out of Bankruptcy over an extended period of time. Of
course the creditors will be hurt and many small and large feeder
industries will go out of existence.
Ford seems to believe that they can 'weather the storm', but they
might be deeply wounded, if the supplier network fails because of
the demise of either GM or Chrysler. You see, the three companies are
tightly tied at the supplier and dealer network
As many as 3,000,000 jobs are at risk. So what's happening
in the US Congress? Well, there is an odd combination of
allies. Here are the teams:
- George Bush, President Elect Obama, the House of
Representatives, the UAW and the CAW all favour solution #1 above
followed by tight management. In other words the entire
industry will in a strange way be acquired by the taxpayers for
a period of time on a loan basis. This happened with
Chrysler in the past and the debt was repaid.
- On the other side are Southern Conservative Repulican Senators, who
have enough votes to hold up the loan. The House has
already sent a bill to the Senate to be approved. Bush
will sign it, if it passes the Senate. Presently, they
don't have the votes.
13/01/2009 04:17 PM
For further reading browse
through Dr. Jones Reflection 6
and the Saugeen Times
articles at the end of it.
Many of the fiscal conservatives in the South have on their doorsteps
Asian Auto Company Plants. These plants have been highly
subsidized by the State Governments in terms of land acquisitions and
some local infrastructure and tax breaks. If the Senate
Conservatives have their way, the following will take place:
- The North American manufacturing industry will be put in dire
straits and may not recover.
- The UAW and CAW will cease to be a force.
- Millions of people will go on employment insurance.
The Republican Conservatives justify their actions in
defiance of the head of their party as follows:
- When are the bailouts going to stop? We didn't bail
out the Steel Industry (now gone in the US), we did not bail out
the semi-conductor industry, who made large volumes of memory
(now moved to the far east), we did not bail out the railroads
(NA has now a transit system that cannot compare with Europe or
Japan and soon China)
- They claim that the free market will correct all this over
time. This is an ideological argument that cannot be
refuted. Yes, things correct themselves over time.
The thing to remember is that the Stock Market was 350 in 1929
and did not reach 350 again until 1954. The US debt load
and financial markets are wounded and this has spilled across
So what will happen? Here is a possible scenario.
- The Southern block will be marginalized and turned at
the last minute by political force and fear of the
consequences of their votes.
- The UAW and CAW will give more on procedural and wage
- The Auto Executives will be put on a short leash, with
reasonable salaries and the white collar work force will be
- Some combining of R&D efforts will be implemented by the
- The Big Three or at least GM and Chrysler will be put
under a board run by a Czar chosen by the President Elect in
the new year as one of the first orders of business.
This might be a cabinet position.
- Bush will side with the House and the Democratic
Senators to produce an interim loan of about $20 Billion to
push the problem to the new President.
- The new Auto Czar will push a creditor agreement to
handle the huge $62,000,000,000 GM debt. This will
avoid the stigma of bankruptcy, but in essence it will be
the same thing. Obama will appoint somebody of substance to
run the show for the next 4 years as a de facto Czar.
- The Czar will really head a small but powerful
organization that will have about 1000 people in the new
- Canada will lose a lot of manufacturing jobs, but not as
many as the US.