The Auto Industry: How Much Longer?

One last thing on what has been a very busy day: the end seems to be well and truly nigh for both GM and Chrysler.

Every other word out of a GM official’s mouth now suggests that the company is headed toward bankruptcy of some sort. The latest was the announcement by GM’s CFO that it would miss making the next payment on its debt. That’s a $1 billion default looming in the next few days. Yes it may all be a negotiating position: GM is clearly trying to extract as much as it can from its creditors. But these games cannot go on forever. Government and creditor patience is wearing thin and GM’s room to maneuver is getting ever smaller. Today’s leak that it is thinking of furloughing all its US plants for the entire summer surely cannot be a sign of health either.

I look for GM to fold sometime this summer.

The clinical part of me says ‘about time too’; the more sensitive side expresses sympathy and concern for the thousands of workers, families, and communities who will be inevitably swept up in the subsequent maelstrom.

Chrysler too is at the end. Today’s leak of the administration having asked the company to prepare a bankruptcy filing for use as early as next week is a negotiating gambit. So far Chrysler’s creditors are playing hardball and not cooperating with the government. I can see that they have to protect their interests, but they have a losing hand. Were the government to pull the plug the creditors would most likely end up with nothing. So the ‘crumbs’ the administration is offering now will seem like a great deal on Monday.

Look for Chrysler to slip into history within a few days. The deadline is next week. And the word is that the government wants to get this mess cleaned up so it can move onto bigger matters like GM and the banks.

So, we are at the end of American dominance of the auto industry. A sad moment. But one that could have, and should have, been avoided. A combination of hubris, incompetence, greed, and insularity brought both thee companies down. What happens to them from here is uncertain. What is not is the passing of the torch in auto manufacturing to Asia.

Yes there will be a big auto manufacturing presence still in states like Alabama and Tennessee, but the design, planning, profit and authority will all now be centered elsewhere.