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http://www.reuters.com/article/marketsNews/idUSLE26534820081114
"Three big European credit insurers have removed cover from suppliers of troubled U.S. carmakers General Motors Corp and Ford Motor Company."
Without credit insurance, suppliers in Europe might demand cash. If European suppliers stop selling to GM and Ford, U.S. supplier could do the same.
@laz98 wrote:
what is going to happen to the auto industry? i have to be honest, i don't really understand what the ramifications of the situation are. i don't even own a car.
Since carmakers are a very big chunk of the US economy, the ramifications are huge and bad. How bad nobody really knows since the situation is unprecedented. Some economists have been saying for decades the Chrysler bailout of 1979 was a long-term bad thing even though Chrysler did recover and pay back the loan with interest. These economists basically say, had we let Chrysler go bankrupt in 1979, that would have been the required two-by-four to the heads of the rest of the US car industry forcing changes that would have put them into a much better position today. Now, however, we face the risk not just of losing the smallest of the Big Three, but losing all of the Big Three. As is usually the case, an extended failure to face a problem head on didn't make the problem go away, it only made it much worse.
On NPR a reporter asked an expert, "why would letting them declare bankruptcy be so terrible, many airlines emerged from Chapter 11 much stronger?" The expert replied, basically because with a car you wonder about the warranty, spare parts, resale value, etc., with an airline ticket once you've returned from your trip you're done with that transaction. The only way buying an airline ticket could be a lost investment would be if the airline stops flying in the relatively short time between buying the ticket and getting the service. So most experts fear unless something is done very soon to restore customer confidence in the Big Three carmakers, sales of US-brand cars may go from slow to nearly zero.
Unions and compensation, that some believe is out of line with the reality of the market, are no doubt a big part of the car makers woes. Make no mistake, unions have over the decades meant the difference between a worker having some semblance of existence and just being a replaceable cog. But today, methinks the unions are often inflicting more harm than good on the workers.
The car makers have been innovating and building more efficient cars, and thus they are now cramming 300, 400 and even 500 horsepower into the vehicles they sell. But many consumers want something with better fuel economy, and even with the price of oil and gas falling, I'm not swayed by the siren song of the modern muscle car. However, for the first time in forever, the car makers appear really interested in building über-efficient cars. Chevy Volt, Ford Fusion hybrid, Saturn PHEV, Chrysler REEV, et al. It would be a wasted opportunity if these cars don't come to market.
Many companies, even companies that sell products consumers will keep for years, do undergo BK reorganization and emerge stronger. But, I have to agree with the opinion that cars are different. When it's time for me to buy, no matter how good I may believe or know the product to be, in the back of my mind I will be wondering about the warranty, service and what happens if they reorganize yet again. Rather than produce adequate spare parts to maintain the cars they sell, will a carmaker simply BK every so often.
All that said, given what's been written about how much GM and Ford are bleeding each month, and given that GM is now warning they might not make it to the end of the year without a bailout--just 6 weeks from now--letting the market work and allowing them to BK or dissolve might in the long run be the best course of action.
I dunno. Just spitballing here. Which probably qualifies me for Treasury or Commerce Secretary.
However, for the first time in forever, the car makers appear really interested in building über-efficient cars. Chevy Volt, Ford Fusion hybrid, Saturn PHEV, Chrysler REEV, et al. It would be a wasted opportunity if these cars don't come to market.
They are becoming interested in building them again because the CAFE standards have been adjusted up to just behind the rest of the world for the first in in decades. I don't really believe that the drive to fuel efficiency has anything to do with the desires of the auto makers.
What I keep hearing is that it's not just the autoworkers or the auto companies. If the big three go out of business there is a potential ripple that will affect 3 million jobs. And who wants to buy a car right now if you don't know whether the warranty will be good after you drive it off the lot? I think these are legitimate concerns while at the same time I agree that they "made their beds".
Politically speaking - if I don't offend the mods - I think the big three, and all other big companies, relied on the the federal government to reduce oversight and delay bringing fuel economy up to standards accepted around the world. If they had stayed on the path started in the 70s, continued the electric vehicle production and testing that they cancelled without letting the leased vehicle be purchased by those who were driving them (and loved them) they might be better off today. Henry Ford looked forward with the invention of the automobile. Lee Iaccoca looked forward when he took the helm of the failing Chrysler - when he was told by the backward looking engineers that a convertible LeBaron was many years in the future, he cut the top off a regular LeBaron and left it in the building as inspiration to the engineers.
It's time for the auto companies to look forward or fail. If the federal government has to step in to change their myopic outlook, so be it.
Noah_Bodie wrote:
Perhaps Big Oil could bail out Detroit. Just empty the change outta the couches in the Exxon Mobil executive lounge.
+1