What’s next for Detroit?

The global financial crisis continues, so does the auto crisis. After Congress rejected the $14 billion bailout for General Motors, Chrysler and Ford, which originally demanded a $34 billion rescue plan, the future of the U.S. auto industry is uncertain. Especially GM and Chrysler are in a precarious financial situation. Without government intervention, they will run out of cash around New Year’s Day.

The consequences of a GM bankruptcy would be dire: Large numbers of GM employees would lose their jobs, suppliers and dealerships would have to shut down. The massive jobs losses would also spread to GM subsidiaries on other continents. General Motors has about 55,000 employees in Europe, most of them in Germany and Sweden. GM’s Opel brand asked the German government for a loan guarantee, Sweden agreed to a multi-billion dollar bailout for Volvo and Saab. Canada also announced an auto industry aid plan worth about 3 billion USD. Detroit’s car makers also have assembly plants and suppliers in neighboring Ontario. Though Ford is still in better shape than Chrysler and GM, Ford could find itself on the verge of collapse shortly after a bankruptcy of a competitor. Ford employs about 70.000 workers in Europe where demand for new cars has also fallen decisively. Therefore, European car makers like BMW and Mercedes-Benz are cutting part-time jobs and cutting their production. GM also takes further action. The company is going to slash its production by 250,000 cars. Besides, the Hummer, Saab and Saturn brands are to be sold. But I cannot imagine who could want to buy any of these brands given the current situation?

Now it’s up to President Bush. The White House is considering to tap funds from the Troubled Assets Relief Program in order to prevent a collapse. The decision is to be announced as early as this weekend or early next week. But even if a last-minute credit extension could enable GM and Chrysler to continue their operations for a couple of months more, it would most likely be “a bridge to nowhere”. Bankruptcy would give General Motors and Chrysler the possibility to reorganize and restructure their business plan which is absolutely necessary. A delayed bankruptcy wouldn’t help a lot to heal the economy, nor could it save a single worker’s job. You can read what I think must be done to make sure that the American auto industry will recover and grow again in “How to save the American auto industry? No time for baby steps!” from November 3oth.

As Dieter Zetsche, CEO of Daimler, the parent company of Mercedes-Benz admitted, auto makers must reinvent the automobile, not only because of the financial crisis and the recession in 21 of the 30 OECD countries.

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