Update on the Auto Companies -- some predictions

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.

  1. 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.
  2. 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.

(next column)

13/01/2009 04:17 PM


 Please read  becomes ?

For further reading browse through Dr. Jones Reflection 6 and the Saugeen Times articles at the end of it.

 

(continued)

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:

  1. The North American manufacturing industry will be put in dire straits and may not recover.
  2. The UAW and CAW will cease to be a force.
  3. 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 the globe.

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 issues.
  • The Auto Executives will be put on a short leash, with reasonable salaries and the white collar work force will be slashed.
  • Some combining of R&D efforts will be implemented by the Czar.
  • 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 year.
  • Canada will lose a lot of manufacturing jobs, but not as many as the US.

Stay tuned.

for world news, books, sports, movies ...