The stalwarts of the US auto industry, GM and Ford, are on the brink of decline and have called for government rescue. US president-elect Barack Obama responded with a promise of low-interest loans to save this crucial sector of the US economy.
Auto sales in the US dropped 32% in October, and auto giants General Motors and Ford are on the brink of disaster.
GM has announced a loss of $2.5 billion in the third trimester. The auto giant currently only has $16.2 billion in cash and it would require an additional $11- $14 billion to continue to function. The problem is one of scale: GM, which celebrates its 100th anniversary, has over a quarter of a million employees.
On Nov. 16, GM Chief Executive Rick Wagoner appealed for urgent action in a television interview, saying that if the auto industry comes under severe pressure, "the impact on the whole US economy will be devastating."
Ford announced the same day that it had suffered heavy losses - as high as $129 billion in the third trimester - having incurred a $24.5 billion loss since 2006. With only $29 billion in cash, the group will be able to continue for about a year, but it has already slashed 10% of its workforce in Europe.
Chrysler has also made it clear that it does not have the cash to weather the latest crisis. GM's decision to give up its pursuit of Chrysler raises new questions about the future of the No. 3 US automaker.
Facing ruin, American legislators are mobilising for a rescue package. “The auto industry is a pillar of American industry and it has an essential role to play in reducing our dependence on foreign oil,” said US president-elect Barack Obama on Nov. 10.
In September, the US Congress approved a $25 billon package of low-cost loans to help hard-pressed carmakers. The automotive loans are separate from the proposed $700 billion bailout.
The aid has not yet been provided to the Big Three. But experts warn that the carmakers cannot wait until Obama’s Jan. 20 2009 inauguration to claim $25 billion more.
Date created : 2008-11-15