11/10/2008, 6:00 pm
general motors news
gm collapse could spell disaster for ford, toyota, honda

general motors is facing the most serious financial crisis of its 100 year existence, with bankruptcy looking like a very real risk. Although there is talk of a bailout package in washington, nothing has come to fruition yet, leaving gm on life support with only enough cash on hand to survive until mid-2009. There is no question that a chapter 11 filing would be detrimental to gm and its employees, but the failure of the nation’s largest automaker would spell disaster for the u.s. Economy.

According to automotive news, the failure of gm – or any other member of the big three – would send a domino effect through the industry, bringing down dealers, suppliers and even foreign automakers.

Because automakers and suppliers are so intertwined, the failure of one car maker has the potential to bring down several suppliers. In turn, those bankrupt suppliers would interrupt ford and chrysler’s supply lines, which would likely be enough to topple the already crippled automakers.

The suppliers that would be left after the fall out would struggle to supply the foreign automakers that have factories in north america, meaning companies like honda and toyota could face some very dire straits.

“if gm goes down, it will take down companies like lear and johnson controls,” wolkonowicz says. “that will shut ford down, and it would shut down production at toyota and honda,” john wolkonowicz, an analyst for global insight, told automotive news. “they would go down like dominoes.”

outside of the auto industry, the collapse of one or two of the detroit automakers would have a tremendous impact on the u.s. Economy as a whole. According to a new study by the center for automotive research, the failure of one or two of the domestic automakers would results in the loss of 240,000 automaker jobs, 795,000 supplier jobs and 1.4 million related jobs.

President-elect barack obama has pledged to make the ailing auto industry his top priority, but it remains to be seen if the government can move fast enough to save the industry and the economy.

11/10/2008, 10:10 pm
general motors news
wagoner: Gm needs federal aid ‘within weeks;’ unwilling to resign

general motors cannot wait until barack obama’s january 20th inauguration as president of the united states to get financial aid from the government, ceo rick wagoner said in an interview published monday evening. Rather, the company needs help within the coming weeks to regain stability.

U.s. Congressional leaders have asked bush administration treasury secretary henry paulson to add the automakers to the $700 billion financial rescue plan, but so far no decision has been made. The current administration has planned on leaving such decisions to obama’s team, but according to wagoner, there might not be time for that.

As noted earlier, analysts believe the collapse of gm could spell disaster for other auto giants like ford, toyota, and honda. Not to mention the possible effect it could have on the u.s. Economy as a whole.

“this is an issue that needs to be addressed urgently,” wagoner told automotive news, stating that now is the time to “overshoot, not undershoot” the scope of assistance.

Wagoner said gm is willing to cap executive pay, give the government preferred stock, and rush more fuel efficient vehicles to market. But he’s unwilling to step down as ceo, and he doesn’t think major management changes will solve the problem.

“i don’t think it’d be a very smart move,” he said. “i think our job is to make sure we have the best management team to run gm. It’s not clear to me what purpose would be served [by resignation].”

11/11/2008, 10:27 am
canada
canada mulls providing aid to detroit

canada’s prime minister said yesterday that he is considering providing monetary aid to the united states auto industry, which plays a large economic role in canada. Prime minister stephen harper said that he is looking at options to help out the auto sector, specifically general motors, ford and chrysler.

All three automakers operate production facilities in canada and employ numerous canadians by way of dealers, suppliers and regional offices.

Harper said that he understands the massively detrimental effect on canada’s economy that a failure in detroit would produce, but he is opposed to a sector of the economy under government control or incapable of operating without government intervention.

“we are all aware of the deep problems of some of the major companies in the auto sector. We are also aware of some of the actions that are taking shape in the united states,” harper told the associated press. “the government of canada will examine all possibilities. We haven’t ruled anything out or anything in.”

ontario premier dalton mcguinty, who presides over the region most engulfed in the auto industry, said that canada can’t compete with already-committed u.s. Bailout offer of $25 billion.

Canada has about half a million workers in fields directly related to the auto industry.

David Olive
BUSINESS COLUMNIST

Nov 10, 2008


With all three Detroit-based automakers in dire straits and seeking a Washington bailout, the moment finally has arrived for a radical reinvention of America's domestically owned auto industry. Which means letting the Detroit Three reorganize under bankruptcy protection, from which several smaller, more nimble and competitive firms would emerge, no longer prisoner to Detroit's hidebound, century-old decision-making traditions.

To bail out Detroit is not to rescue the U.S. auto industry, despite how the CEOs of General Motors Corp., Ford Motor Co. and Chrysler LLC continue to misrepresent the federal bailout they seek.

For more than two decades, there have been two U.S. auto sectors. There is the familiar Detroit Three (no longer the Big Three), which are corporate cripples after decades of mismanagement.

And there are the much healthier U.S. operations of Asian and European automakers that employ millions of Americans turning out Hondas, Toyotas and BMWs, sooner or later to be joined by Chinese and Indian makers. The foreign-based firms already operate 16 vehicle assembly plants and dozens of parts plants from Alabama to Ohio to Ontario.

Led by GM, Detroit is again a holdout against progress, arguing for the continuation of a failed status quo, just as it resisted everything from today's life-saving three-point seatbelts to fuel-efficiency standards to the devastating (to Detroit) recent shift in consumer demand to small cars from gas-guzzling sport utility vehicles and heavy trucks.

Detroit arguably stands alone in chronically failing to "get it" since its laudable introduction of enclosed passenger cabins and automatic transmissions before most of today's motorists were born.

One way or another, Detroit has been cosseted by taxpayers and motorists since the ill-fated Chrysler bailout of 1979; followed by the Reagan-era "voluntary" quotas imposed on imports, which did not deter American consumers from paying the resulting higher prices for better-built Hondas and Toyotas; followed by repeated abeyance or postponements of fuel-efficiency standards the feds sought to impose on Detroit.

The ill-fated 1979 Chrysler bailout, which secured that company's viability for just two decades, signalled the larger GM and Ford that they also were "too big to fail" and needn't abandon their complacent ways. The import quotas inspired first the Asian rivals and later the Europeans to leapfrog that barrier by making in America most of the vehicles they sell in America. And granting Detroit leave from onerous fuel-efficiency standards enabled the foreign-based competition to gain a competitive advantage by complying with or exceeding the U.S. mandates.

Detroit's sense of exceptionalism has not diminished.

Rick Wagoner, GM's chief executive, was on Capitol Hill last Thursday making a pitch for taxpayer assistance in financing its proposed merger with Chrysler – this after Detroit had secured in September $25 billion (U.S.) in federal funds to finance development of fuel-efficient vehicles.

Yes, you read that correctly. Developing products necessary to ensure their future, as foreign-based firms have long since done with their own money, is something Detroit has to be paid public money to do.

At a moment when Washington is trying to come up with the scratch to keep imperilled homeowners from losing their homes, the Detroit makers further propose that the additional bailout funds they seek – a rumoured $10 billion in GM's case – be carved out of the $700 billion bank bailout fund that U.S. lawmakers rightly criticize for failing to provide for homeowners as well as Wall Street banks and brokerages.

As if chutzpah weren't enough – GM's finance arm, GMAC LLC, which has lost $9.1 billion in the past two years as a mortgage-lending enabler in the historic collapse of the U.S. housing market – Detroit is also stooping to coercion.

GM has lost an almost incomprehensible $70 billion (U.S.) since the end of 2004, while the U.S. economy was still healthy, and yesterday reported a $2.5-billion third-quarter loss.

Barack Obama backer Roger Altman, the former Clinton-era Treasury official forced to quit under an ethical cloud, and now a top adviser to GM in its merger talks with Chrysler, warned the Obama economic team publicly last week that the collapse of any of the Detroit Three "would be a difficult way for a new administration" to take office.

Reading from the same scare-tactics script, John Snow, a mediocre if generously compensated CEO of U.S. rail giant CSX before becoming George W. Bush's second, invisible, Treasury secretary, and now chair of Chrysler owner Cerberus Capital Management LP, told CNBC that Washington must ensure "that a vital industry like autos, which is such a big part of the overall economy, doesn't lead us into a deeper and harsher downturn."

Any bailout of GM, enabling it to purchase Chrysler, would be a bailout of the short-sighted dealmakers at private-equity firm Cerberus in their exquisitely ill-timed bet on Chrysler in buying the firm from Daimler AG last year, only to see Chrysler's fortunes further plummet after the deal.

Detroit has been a significant destroyer of jobs and shareholder value for the past decade, and sporadically in decades past, as well. Worse, its sclerotic decision-making has helped hold America back from technological leadership in one of the world's major industries.

As the cockpit of capitalism, banking is an essential service whose seize-up this September required a bailout by global governments. The auto sector is not as important, and the Detroit Three no longer account for more than a fraction of that sector.

And the latest straw GM is grasping at, a combination with Chrysler, proves again how lacking in smarts is the existing troika of Detroit CEOs. A GM already burdened with too many brands (eight) merged with Chrysler's three brands would require a years-long shedding of jobs and closing of excess plant capacity in search of the "synergies" that former Chrysler owner Daimler found so elusive in its sorry nine-year-long ownership of the firm.

If an Obama who last week pledged to make aid to Detroit a top priority is serious about change, he will rule out a Detroit bailout. Or he and Congress will effectively nationalize Detroit, deploying a team of experts to preside over the dismantling of these firms that for generations have lacked the managerial acuity of founders William Durant and Alfred Sloan of GM, Henry Ford and Walter P. Chrysler.

People oppose auto bailout: Flaherty

Finance Minister Jim Flaherty said some people in his own Ontario riding – a key centre of automobile assembly – do not want the car companies to be bailed out.

“There are many people saying we should do something with respect to the auto sector,” he told an economic conference in Toronto. But even in Whitby-Oshawa, which is the Canadian home of General Motors, “there are lots of people who say: ‘Don't do anything; don't use my tax money to bail out an enterprise that may not survive'.”

The people who have told him this are not rich, Mr. Flaherty said, but “people on the street.”

Mr. Flaherty said, however, that he expects there will be a legislative proposal some time soon from the U.S. Congress for a bailout of the large automobile companies.

He said he has had discussions with the three big Detroit-based car makers, but the money that is available in Canada is for “transformational” support.

Canada needs to find a way to ensure that the industry has a product mix that is going to sustain demand, he said. “At the end of the day we need car makers who are making cars that people want to buy.”

Earlier in the day Mr. Flaherty told a news conference that Ottawa is “monitoring” the automotive industry, but it has not yet decided what action can be taken to support that sector. He said Industry Minister Tony Clement is talking to the auto companies “and we'll see what we're able to formulate for the industry.”