The unthinkable moved a notch closer last night after the United States Senate failed to pass a $14bn emergency loan package for the Detroit Big Three. While Ford should be OK for now, there is a very strong chance GM and Chrysler will fail before 2008 is out, running short of the $4bn (GM) and $7bn (Chrysler) they need this month to pay suppliers, make payroll and keep the factory doors open.
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Today (12 December), the United Auto Workers union is in the frame, accused of failing to agree concessions by early 2009, as demanded by Senate Republicans, rather than by 2011 when its current labour deal with the Big Three runs out.
The thought here at just-auto is that the union may be getting all the blame unfairly as it has already made significant concessions. What about last year’s new labour agreement that introduced the two-tier wage structure? New hires now start on wage rates comparable (or less) to those in the non-union foreign-owned ‘tranplant’ car factories in southern states. And the union has agreed to take on the funding of retiree healthcare from trust funds from 2010. Concessions have already been made and UAW leadership has indicated willingness to pare further, over time.
Southern senators from states like Alabama (Mercedes plant), South Carolina (BMW), Tennessee (VW plant planned) have been quick to rail against spending taxpayers’ money to help Detroit out of the mire. But how were the transplants lured in the first place? Just watch the scramble when a foreign automaker hints it might build a plant somewhere in the south. State politicians can’t get aboard planes for Japan, Korea, Germany quick enough, briefcases stuffed with, er, taxpayer-funded incentives. You want a greenfield site? You got it. You’ll need a new junction off the nearby interstate? We’ll get building. A rail spur? Done. Help luring suppliers to an adjacent park? Of course. Training programmes to provide skilled employers? It’s yours. Tax breaks for the first x years of operation? Natch.
And just who do you think pays for all this? We are not alone in our view as this story shows.
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By GlobalDataIt’s all very well to argue let free market economics take its course. Let Detroit sink or swim on its own merits. Other automakers will fill the gap, etc. But suppliers are likely to collapse like a row of dominoes if they lose even some of the domestic automakers’ volume and Detroit has shown, at last, signs it can change. Factories have been closed, tens of thousands laid off, acclaimed new models are in production and new lines of fuel-efficient cars are coming. Do the politicians want what’s left to flourish, or even more of the Midwest to become a rust belt, full of disgruntled, jobless, homeless, healthcare-less citizens?
As one senator has said: “There is only one Plan B, the president”. If Bush doesn’t want his legacy to include the demise of an iconic automaker or two, he better be on the phone today. Certainly, this afternoon, there are signs of a change of heart in Pennsylvania Avenue. The White House has now said it would now consider using some of the US$700bn bailout earmarked for the financial services sector, a move the administration has previously rejected.
Regrettably, there hasn’t been much good news elsewhere this week. Automakers continued to cut production days including BMW’s Mini here in the UK, which has been riding a growth wave for years. Nissan’s local plant, again until recently on the up thanks to the Qashqai’s success, also cut output as did Mitsubishi’s US plant. And Mercedes’s US plant, And Toyota looks like cutting its global volume forecast again.
Spanish auto workers will take to the streets tomorrow to protest uncertainties surrounding their Renault plant and Fiat has delayed the reintroduction of right hand drive Lancias.
Still, at least a little investment is still being mulled over. This week’s news included plans to assemble Chinese vehicles in Bulgaria.
Enjoy your weekend,
Graeme Roberts
Deputy Editor
just-auto.com
