US CAR INDUSTRY

Recent Problems in the Car Industry in USA

Recent Problems in the Car Industry in USA

Introduction

In the latter half of 2008, a global-scale recession began to affect the economy of the United States. The impact of the recession contributed to declining automobile sales and a widespread automotive industry crisis. There is intense debate regarding the content and approach to a massive United States auto industry bailout and restructuring. Such a bailout may involve financial and other concessions from a variety of stakeholders, such as management, employees, dealers, suppliers, stockholders and bondholders (Abedini, Peridy 2009: 790).

Many note that the crisis occurred mainly as a result of bad business practices of the Big Three U.S. automakers. Analysts point out that Asian companies that manufacture automobiles in the U.S. are not experiencing similar problems. A December 22, 2008 New York Times article stated, "For the most part, the so-called auto transplants — foreign-owned car companies with major operations in the United States (Anastakis 2005:1960) have deep pockets and ample credit, and they are not facing potential bankruptcy like General Motors and Chrysler." Much of the criticism centers on structural differences between the Big Three and the "transplants" (foreign companies manufacturing in U.S.) that result in major cost differentials.

Discussion

The US Big Three was first weakened by the substantially more expensive automobile fuels linked to the 2003-2008 oil crisis which, in particular, caused customers to turn away from large sport utility vehicles (SUVs) and pickup trucks, the main market of the American "Big Three" (General Motors, Ford, and Chrysler). The US automakers also suffered from considerably higher labor costs than their non-unionized counterparts, including salaries, benefits, healthcare, and pensions. (Argyres 2007:1332) In return for labor peace, management granted concessions to its unions that resulted in uncompetitive cost structures and significant legacy costs.

The crisis in the United States is mainly defined by the government bailouts of both General Motors and Chrysler, while Ford secured a line of credit in case they require a bridging loan in the near future. Car sales declined in the United States, affecting both US based and foreign car manufacturers. The bridging loans lead to greater scrutiny of the US automotive industry in addition to criticism of their product range, product quality, high labour wages, job bank programs, and healthcare and retirement benefits (Bergouignan, Bordenave, Lung 2000:41).

In the United States under Chapter 11, if a company declares bankruptcy then they can go to a bankruptcy judge who will then decide what is in that company's best interest. The judge will look at all of the company's different aspects and from that they will create a leaner and stronger company. GM, Chrysler, and Ford are all in trouble because they have not correctly managed their company's products, (Black 2009:483) time, and money. With the bailout plan President Obama and his administration currently have available it will ensure that there is restructuring of the companies. They have planned for GM to be funded for 60 days during which they must come up with ...