Looks like Wall Street isn’t the only U.S. market in dire need of government assistance in today’s fragile economy. The auto industry has experienced such a rapid decline since the beginning of the year, the biggest American auto makers are begging for a portion of that infamous $700 billion rescue plan. Speaker of the House Nancy Pelosi proposed an auto bailout bill yesterday, which could potentially extend the reach of the government funding beyond the financial industry. GM, Ford and Chrysler are seeking $25 billion in urgent assistance. The total bill would be $50 billion.
Hemorrhaging cash due to an extreme lack of consumer purchases, auto makers claim that rigid limitations to borrowing have prevented sales in an industry that is largely driven by credit. GM’s crippled financial standing has grown increasingly evident in recent months: It reported a 45% drop in U.S. sales last month and a net loss of $2.5 billion in the third quarter. Ford is in the best shape out of the three, but still burned through $7.7 billion last quarter.
Autoline blogger John McElroy wisely noted last week that GM was in position for bankruptcy if help didn’t come through soon: “Unless a miracle happens, there’s only one place it can realistically turn to: the Federal Government. The company needs a bridge loan to get it through this downturn. And it needs the money yesterday.”
The next question is: What does this mean for foreign competitors in the U.S. market? Honda sure hasn’t been deterred by global economic turmoil. It even opened a plant in Indiana just last month. Excited president of manufacturing, Yuzo Uenohara, declared: “With continued high demand for the Honda Civic, we are honored and excited to help meet the needs of our customers in North America.”
There’s no doubt that many Americans are frustrated and bitter over the success of foreign manufacturers. But the simple and irreversible truth is that Asian and European models sell, and American makers continue to fall short in satisfying consumer needs and interests. If the bailout does come to pass, hopefully the Big 3 are driven to produce autos that put the customer first.