Activity in new car showrooms continues to reflect consumer skittishness, a dismal economic forecast, and credit woes in the fourth quarter of 2008. For many of the same reasons that precipitated the banking and loan industry troubles, greed, poor economic vision, and blind ambition, the country's entire manufacturing base, lead by the automobile industry is running on empty. You only need to compare November's sales stats to conclude that we are in desperate times, calling for desperate measures.
General Motors and Ford reported 40 percent and 31 percent drop in sales respectively in November, according to the Associated Press, foreign competitors Toyota and Honda were comparable to Ford in sales losses. Even with TV ads blaring that Ford and GM have money to loan, wary consumers are tucking their paychecks away and holding on to their vehicles (for which dealers offer disappointingly low trade in value) .
After repeatedly failing to convince Congress of their need for financial assistance, the top 3 auto makers conceded to House Speaker Nancy Pelosi, D-Calif., that the troubled industry must demonstrate its worthiness by making all-inclusive changes, suspending lavish expenditures, and guaranteeing the taxpayers that it would repay its loans before any assistance will be offered. Some in Congress even want auto execs to take a cut in pay as part of the deal. Speaker Pelosi also declared that the alternative, forcing the auto industry to declare bankruptcy, is not an option, and that it could cause long-term problems.
How the auto industry improves fiscal responsibility, cost-cutting, product mix, vehicle pricing and quality will be crucial to its survival regardless of loans from US taxpayers. Chrysler and others are looking at any financial assistance, not as a bailout, but as a bridge loan to help them get through 2009, a year which will see about 3 million fewer car and light truck sales than in each of the last seven years.
In an attempt to increase its liquidity, GM is looking for a buyer for ACDelco, its aftermarket parts holding, hopefully netting $15 billion. Planned for a mid-year 2009 launch, Chrysler has now permanently shelved its Dodge Challenger Convertible; GM will put its Camaro Convertible on hold for another year as both companies troll toward profitability. Even green auto makers like Tesla are postponing the launch of new models, and the construction of its new Northern California plant due to loss of consumer confidence.
Whether a bargaining tactic or a sincere assessment of its financial strength, Ford CEO Alan Mulally recently declared that Ford may not need the $9 billion in aid it is seeking, foreseeing a return to profitability by 2011. His plan would include retooling 2009 models to be 14 percent more fuel efficient, and devoting $14 billion in improving fuel efficiency by developing electric cars over the next seven years.
Many analysts assert that it would be a more effective and permanent fix to let the auto industry solve their own problems by allowing them to be restructured according to bankruptcy law. GM and Chrysler counter that without financial help, the consequences of their financial failure could trigger the entire manufacturing base of the country to fail. The early manifestations of the problems the auto industry now face would have been easier to deal with when they were first recognized.
Some lawmakers believe that a bailout, bridge loan, or other measures may be too late. Whether the House of Representatives decides to vote on assisting the auto industry will largely depend on what the automakers propose to do with the now $34 billion they are seeking. December, 2008 will witness a sequence of events in the automobile industry not previously experienced or imagined. Meanwhile, consumers watch as auto executives arrive at hearings in their Gulfstream G650s and Bombardier Global 5000s, tin cups in hand.
