Auto Industry Collapse
Updated: December 10, 2008
The U.S. Auto Industry
Collapse
The U.S. auto industry is
far too important to be allowed to fail. Millions of jobs in
supporting industries depend on the auto makers so they can’t be
allowed to fail - no matter the cost. Since over two million
jobs depend on them so they’ve been added to the burgeoning list of
too-big-to-fail institutions.
Problem is, no matter how
successful the bail-out is, the industry as a whole will never again
see the kind of sales and profits that were so common even five or
six years ago.
Chrysler will most likely
either merge with GM or Ford or go belly-up on it’s own. If it’s
allowed to fail, it’s remaining inventory of vehicles will be
quickly dumped on the market at fire-sale prices. This will torpedo
GM and Ford sales just when the firms are the most vulnerable.
"If one of
us fails, all of us will fail."
- Alan Mulally, CEO Ford
The other problem lies with
the leadership of these firms. These CEOs have run their companies
into the ground, haven’t responded to market challenges and now
these same failed CEOs expect tax payers to trust them to revive and
rebuild the same industry their incompetence destroyed. We clearly
need a new set of corporate leaders with an entirely new vision.
But an even more important
factor has to do with health care costs. In Japan and Europe the
governments shoulder the costs of their universal health care
systems. But here in the U.S. car manufacturers are forced to add
around $2,000 per car to the sticker price to cover employee and
retiree health care insurance costs. This puts them at a substantial
disadvantage when they attempt to compete with the best small car
makers on the planet.
In the past Americans
commonly bought new cars ever three to five years. They enjoyed
driving a newer more reliable car and wanted to keep up with the
Joneses next door. This was American consumerism at it's best.
But now with deflation in
the air, consumers are hunkering down and taking better care of
their cars. They’re beginning to realize that a set of wheels can
last a decade or longer if given proper maintenance. And with prices
falling, what incentive do they have to buy now? They’d rather wait
for the lower prices in the future.
2009 will be a very bad year for Detroit. You can expect a long list
of worse-than-expected announcements. Plants will be closed and
workers dismissed. Divisions like Saab, Saturn and Volvo will be
sold off, probably to foreign manufacturers.
But remember – each Detroit
job lost will inevitably trigger several additional layoffs in the
many industries that are dependent on the auto firms. A staggering
one in six American workers has a job that depends directly or
indirectly on the auto industry so you can expect the unemployment
rate to climb.
No doubt the U.S. car
industry will survive in some form but you can expect it to be a
mere shadow of it’s former self. It’s golden age will forever
lie in it’s past.
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