Tuesday 9th December 2008

US Bailout Still Possible

Some hope yet for 'big three'

---

The short term future of the ‘big three’ US manufacturers looks slightly less shaky as reports from across the pond suggest Congress is closer to voting for a multi-billion dollar bailout.

A proposed bailout bill unveiled yesterday contains a number of conditions that it’s hoped will curtail the car giants’ freedom to foul up in future, and agreement appears likely this week in spite of widespread reservations in Congress.

Conditions include the appointment of a government ‘car czar’ who will make sure all future decisions pass a financial viability test, and who would have the power to direct all negotiations inside the companies, and with unions and creditors.

The amount in the bailout piggybank has yet to be decided, but something in the region of $15 billion is being mooted. The carmakers will then have a March 31^st deadline to submit full restructuring plans, after which the loans could be recalled if sufficient progress is not being made.

As part of the price to be extracted in return for taxpayer support, the loans may also be made conditional on carmakers ending their legal battle against stringent new ‘green’ regulations being enacted by many states in the US.

Forcing the US industry to accept tough new standards is likely to accelerate the pace of green developments across the global industry – or what remains of it when the credit crunch is over. Some analysts believe the US bailout will increase the likelihood of other governments being forced to support domestic car production. Here in the UK, the Society of Motor Manufacturers and Traders maintains it needs access to credit, not government handouts – but rumours abound that Tata is already begging for £1 billion of UK taxpayer support for its Land Rover and Jaguar operations.

[sprinter885]

I thought this £1Bn Tata request was discussed on earlier editorial thread & dismissed as NOT exclusively Tata-but an "industry-wide" figure ??

[varsas]

The UK taxpayer poured £11 billion (equivalent of, anyway) into british leyland and look at the good that did. Ford et el need to re structure, and maybe even go out of business. giving them money will only delay them doing that. They can't live in the 'real' world, give them money now and you'll be doing it forever.

[Wilburo]

Ford should be able to survive - transport the European models, as they are, out to the US and sell them.

They're more what people are after now and are so, so much better than what they have out there already. Very little R&D expense either.

[Fetchez la vache]

Wilburo said:

Ford should be able to survive - transport the European models, as they are, out to the US and sell them.

They're more what people are after now and are so, so much better than what they have out there already. Very little R&D expense either.

You would think that wouldn't you.
However Ford have found to their cost in the past that is isn't always that simple. There is a long history of successful european models bombing in the States...

[Frimley111R]

Fetchez la vache said:

Wilburo said:

Ford should be able to survive - transport the European models, as they are, out to the US and sell them.

They're more what people are after now and are so, so much better than what they have out there already. Very little R&D expense either.

You would think that wouldn't you.
However Ford have found to their cost in the past that is isn't always that simple. There is a long history of successful european models bombing in the States...

Agreed. The US consumer wants a car as big as possible with as much equipment as possible. The only way to complete is to make the cars as cheaply as possible. That's not what Euro cars are about. Spend time in the US and you'd soon realise how different the market is.

I am surprised the Government don't opt for a stake in the companies, make them cut their loss making areas as a matter of urgency and make some cash at the other end of the economic period. The companies are good, just 'fat'. Their empolyees who are not working are on 95% pay! They can't afford to do that.

[Gold]

Fetchez la vache said:

Wilburo said:

Ford should be able to survive - transport the European models, as they are, out to the US and sell them.

They're more what people are after now and are so, so much better than what they have out there already. Very little R&D expense either.

You would think that wouldn't you.
However Ford have found to their cost in the past that is isn't always that simple. There is a long history of successful european models bombing in the States...

Are times are changing though, SUV sales are falling, people are looking to save money and believing the lentilists?

[M3CHA-MONK3Y]

"Conditions include the appointment of a government ‘car czar’ who will make sure all future decisions pass a financial viability test"

Say good bye to supercars, hypercars and outlandish concepts. Cars like the XJ220, Buggati Veyron, GT40, Lambo Muira all produced at a loss but iconic benchmarks all the same. It may only be the Yank companies at the moment but depending on how long this goes on for, many more could come under government control. Let them sink if they're struggling, it's a business not the NHS, why pay a company to stay afloat, doesn't that defeat the point?
"..And what does your company do Mr Ford?" "Well basically people pay us large sums of money to be a company....oh and I think we make cars too, but i'd need to check that."

bkS

[dublet]

Gold said:

Are times are changing though, SUV sales are falling, people are looking to save money and believing the lentilists?

SUV sales dropped when the price of petrol was high (a shocking $4/gallon). Price of petrol is dropping again, and more SUVs are being sold again.

[J111]

varsas said:

The UK taxpayer poured £11 billion (equivalent of, anyway) into british leyland and look at the good that did. Ford et el need to re structure, and maybe even go out of business. giving them money will only delay them doing that. They can't live in the 'real' world, give them money now and you'll be doing it forever.

The US economy can't afford it. The idea that some banks are 'too big to fail' as nothing compared to the taxpayer costs that would be incurred by the failure of the big three. Add to that the political catastrophe of unemployment heading (even further) skywards and something is going to be done to rescue at least Ford and GM. Quite how half-baked the combined efforts of panicky shareholders, union bedevilled management, and clueless politicians turn out to be remains to be seen !

dublet said:

Gold said:

Are times are changing though, SUV sales are falling, people are looking to save money and believing the lentilists?

SUV sales dropped when the price of petrol was high (a shocking $4/gallon). Price of petrol is dropping again, and more SUVs are being sold again.

Proving that the average person has the memory span and strategic planning abilities of a goldfish.

[Graham]

Did i read somewhere that a sustained 10% drop in car sales across the usa would lead to 2-2.5 million out of work

im sure on news night it was said there is a total of 1 million in the uk employed in the car industry...

[varsas]

Can the US economy afford to pay people to work at a loss making company? Aren't you basically putting them on the dole? How long is this supposed to go on for?

According to the SMMT it's 850k employed by the UK car industry.

Edited by varsas on Tuesday 9th December 13:29

[stuart-b]

Fetchez la vache said:

Wilburo said:

Ford should be able to survive - transport the European models, as they are, out to the US and sell them.

They're more what people are after now and are so, so much better than what they have out there already. Very little R&D expense either.

You would think that wouldn't you.
However Ford have found to their cost in the past that is isn't always that simple. There is a long history of successful european models bombing in the States...

Agreed, but if the three major companies HAVE to sell Euro models, rather than making crap only sold in the USA - what choice do people have?

People in the Eastern block drove Ladas et al - not through choice, but it was all they were able to afford/could get.

If Euro cars are sold over in the USA, they will be smaller, more efficent and better built.

It seems the 'World Car' isn't far off now.

Lots of Range Rovers and Mercs are sold in the USA, do they change the design of the Range Rover? No. Do they change the Merc, or Porsche? No.

So why is Ford making the Focus out in the USA the size of a British double decker bus?

[motormania]

stuart-b said:

So why is Ford making the Focus out in the USA the size of a British double decker bus?

Have you seen how fat Americans are?

[aeropilot]

motormania said:

stuart-b said:

So why is Ford making the Focus out in the USA the size of a British double decker bus?

Have you seen how fat Americans are?

It is strange, my mate who emigrated out to California 6 years ago, was going to buy a US Focus about 3/4 years back as he'd had driven them often before he moved out there. But, after going to his local Ford dealer and actually driving one, he just couldn't believe how bad it was compared to a European Focus. He said there was just no similarity at all, it was crap.....so he and his missus bought a Hyundai instead, which says how bad it must have been.

[B10]

varsas said:

The UK taxpayer poured £11 billion (equivalent of, anyway) into british leyland and look at the good that did. Ford et el need to re structure, and maybe even go out of business. giving them money will only delay them doing that. They can't live in the 'real' world, give them money now and you'll be doing it forever.

You forget to mention that Renault used to government owned. The French government still own 15% and the 1980s, the company got a bail-out equal to nearly €4 billion, or $5.1 billion. Also I am sure that the government would have 'given' Renault money before the 1980s. Renault-Nissan seems a success; so government aid is not always a bad idea. It depends upon many factors including, management, staff, quality, R&D, protectionism and patriotism. VW was effectively bailed out after WW2 by the British and the West German government did much to help the almost destroyed car industry in the early fifties.
Personally one of the 3 US car manufacturers needs to go to ensure that the other 2 survive and it should be Chrysler. Not because of its products but because it would not greatly effect the global car industry due to its mainly US centric engineering and production.

[californiacuda]

The Big 3 US carmakers pay about 2,000 dollars per car to for the retirement costs of former employees. Besides the US government, they are the largest retirement payee in th US. In the long run, how can they be competative with other car companies that don't have the same expenses?

[KM2]

Saturn in the US has the Euro Vectra and Astra (Aura and Astra respectively) on sale and in spite of being very good products in their respective classes (Aura was COTY in the US in 2007) they sell miserably. The Lada argument does not fly as there will be other oferings - foreign brands account for more than 50% of the market already. As for SUVs being history - just look at the sales numbers. After the success of small, economical cars in May, SUVs are back on top, having fallen far less than those cars. The F-150 is bestseller again, with a 10% fall in sales compared to May, while the Civic and Corolla both suffered a decline on the order of 50% since then. It's not quite that simple. And while Merc and Porsche do not alter cars for the US market in a dramatic fashion (different suspension and steering settings IIRC), all the Japanese and Korean manufacturers, which account for a majority of the import / transplant market, do. A US Accord has nothing to do with the Euro one, same for Civic, the Camry died out in Europe anyway, being rarer than a Veyron in the last years.

So while Ford's plans look good in principle, there is no certainty that they will work. Same as with Bob Lutz at GM - all of the products he brought to the US have been monumental sales failures, in spite of being much better than GMs domestic fare. The two mentioned Saturns for one, the Pontiac GTO (Monaro) and Pontiac G8 (VXR8) for another are all sales disasters.

[bencollins]

Blimey, dont envy people making these decisions.
They somehow need to jettison the pensions and the union deals (was about $60 PH for a lineworker IIRC).
Start making $2k per car not losing $2k per car, by fewer models lines and massive shutdowns, probably even import tariffs for while to stop Korean and Chinese dumping.
Grim.

[untakenname]

American car manufacturers being given unsigned cheques won't be good for the rest of the car market, think porsche said something along those lines a little while ago.

This picture made me lol as its so true, car manufactures need to build desirable products otherwise they will go bust, same as any other capitalist company.

[tridave]

[redacted]