Automotive Economy

U.S. automotive Economy Crises

The crisis in the automotive sector has begun to exercise the dreaded domino effect. The fall in output and job losses at major automobile companies have also begun to hit the industries that manufacture components for vehicles. The most glaring example is that of the German multinational Robert Bosch. In recent months, the company has been falling in production by 40% as well as experiencing the loss of its two major customers, Chrysler and Renault.

“GM, Ford and Chrysler have spent 30 years in denial,” says one specialist, who adds that “they are not trying to be competitive, nor heeded the affairs of unions and ceded the market to Japanese manufacturers.”

Ford Motor Co. tried to design a series of compact cars that require little fuel to compete with the Japanese producers but chose to abort the project.

No one could understand how to make money with affordable compact cars with the high cost of the work force of Ford. The company earned millions in profits by selling pickup trucks and sports cars when the economy was better and petrol was cheaper.

That attempt to design other cars says a lot about why the Detroit manufacturers have such a critical situation which could be months from bankruptcy.

Democratic leaders in Congress on Saturday asked the government during Bush’s administration for increased aid to the weakened U.S. auto industry which has been almost out of money before the largest drop in sales in 25 years.

The chairman of the House Nancy Pelosi and Majority Leader in the Senate, Harry Reid said in a letter to Treasury Secretary Henry Paulson that the government should consider extending the purposes of the rescue plan by 700,000 million dollars to cover automotive companies.

Critics contend that for years the leaders of Ford Motor Co., General Motors Corp.. and what is now Chrysler LLC were clumsy to deal with the unions, have not invested enough in new products, ceded to the Japanese market and were poorly prepared for the inevitable increase in the price of gasoline will make obsolete the vans and sports cars.

“It has been 30 years of denial,” said Noel Tichy, a professor of business at the University of Michigan, writer in charge of the leadership program at General Electric Co. from 1985 to 1987 and consultant to Ford. “We are not trying to be competitive, have not handled the affairs of the unions and the cost structures for some time and everything that makes a successful company” he added.

Detroit Manufacturers

On Friday, GM reported major losses in the millions in the third quarter and said it could run out of solvency by the end of the year. Ford reported a loss of 129 million while analysts in the industry believe that Chrysler, which became a private company that does not need to publish their books, is as bad as GM.

Representatives of industry argue that its opponents are simplistic and fail to recognize the tremendous progress made in this decade to reduce costs, increase productivity and create competitive cars while complying with the many government regulations and the great power of trade unions.

“In the past five years we have had more restructuring in the auto industry than in any other class in U.S. history,” said Tony Cervone, vice president of communications at GM.