Future of the “Big Three” and the world car market

The US’s “Big Three”, General Motors, Ford Motor Company and Chrysler Corporation, are hovering between life and death. They are asking for a maximum of US$34 billion (\3200 billion) of US government funds but some members of Congress are critical of the automakers’ lenient restructuring and are opposed to saving them; members of public have a chilly view toward this crisis too. However, if even one of them goes into liquidation, the impact to the world economy will be incredible; so everyone in the world is holding their breath to see the final decision.

All of the Big Three are in danger financially but especially General Motors and Chrysler Corporation are in a critical state. Without the government’s help, there is a good chance of GM going bankrupt before the year ends. Richard Wagoner, the chairman is asking for an immediate cash injection of US$40 billion before the year ends. The government under President Bush was once critical but after thinking about the impact of the company’s bankruptcy, they are considering some financial assistance under the federal bankruptcy law. They are worried that the US economy will suffer major damage if both GM and Chrysler Co have to file for their bankruptcy and cannot achieve any drastic rehabilitation. Although they will not just disappear even if they go into liquidation, their cars are the products carrying their companies’ brand names and image. No one buys products of bankrupted companies. Their sales will drop even further and it will get harder to turn their business around.

Also, with the current credit shrinkage, some car parts manufacturers could also go bankrupt one after another. So even if the car assembly companies remain in business after their bankruptcy, without parts they cannot keep making cars. This is going to affect Japanese car manufacturers who have their assembly factories in the US. The other day, Honda’s CEO told the media that his company was increasing the shipping load of parts for stock from Japan. They used to get the parts from local manufacturers who were also heavily supplying the Big Three.

The biggest problem is that it is going to cause a lot of unemployment which will speed up the downward slide of individual consumption and this will eventually make this economic recession worse. In fact, if they go into liquidation, it might put us into a panic state like the Lehman shock and cause another financial crisis.

On the other hand, even with government’s help, unless they do some radical restructuring, there is a good chance they are going to face the same problem again. In the USA, car manufacturers are capable to produce 20 million cars but demand has dropped dramatically from its peak of 17 million and next year it is estimated to drop even further to 11 million. It is obvious that they have to reduce their supply so it is reported that the Big Three now have to slash their staff and have some large scale factory closures. They have not been making competitive products able to beat Japanese car manufacturers for a long time.

Anyway, for a while, demand of cars will get smaller in the USA and it is going to affect the world. In Europe, the demand is also expected to drop. Financial institutions there are also suffering from damage after the financial crisis at a similar or worse level as the USA. The factor which is making this global recession worse is the speed of the changes. One of the CEOs in Japan was saying, “The situation is changing everyday. We cannot wait & see for a week”. According to him, his workers complain that he changes what he had decided the day before.

In November, car sales in the USA were 37% and in Japan 27% less than compared with the same month the year before, which was the worst ever. Unfortunately there is no prospect of a recovery in the near future considering the unemployment situation. We are definitely facing the worldwide “era of unemployment”. The unemployment rate in the USA was 6.5% in October, which was the highest in the last 15 years and it is going to keep rising. In Japan, companies are rapidly controlling their employment starting with their part-timers.

In the world like this, to get the economy back, we need to create demand. To do so, we have to create more jobs like a new “New Deal programme”. The Americans are concentrating their hopes on their new President Barack Obama. In Japan, we have some good news. It is decided that automobile tonnage tax and automobile acquisition tax are cut temporally for low-emission vehicles. I hope this is going to stimulate consumers urge to buy new cars…


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