Will Fiscal Crisis Crush Ailing U.S. Auto Biz?

The last few months have brought the collapse of some of the titans of the U.S. investment banking industry, sending shock waves through Wall Street and beyond. Now some are asking whether automobiles, another iconic American industry, will see its leaders suffer a similar fate.

In other words, will General Motors, Chrysler and Ford survive?

"Really, nobody knows the answer to that," said Aaron Bragman, a research analyst for the economic analysis firm Global Insight in Detroit.

"They've got some serious issues, [and] a lot of it is derived from the poor state of the American economy," he said.

Speculation about the future of the country's two top automakers has reached a fever pitch in recent days. GM is reportedly in preliminary talks about a possible merger with Chrysler, the nation's third-biggest car company. According to The New York Times, GM had initially approached Ford about a merger before setting its sights on Chrysler.

auto industry
null

GM, Ford and Chrysler have all issued statements declining to comment on any talks.

"Discussions go on all the time between automakers on a wide variety of issues," GM spokesman Mike Meyerand said in an e-mail to ABCNews.com

News about possible merger talks first surfaced late Friday, just hours after the share prices of both GM and Ford plunged after an announcement by the ratings agency Standard and Poor's. The agency said it was reviewing the companies for a possible downgrade in their credit ratings.

Its decisions, S&P said, were partly based on "rapidly weakening" global auto markets and challenging capital market conditions.

Experts say part of what's hurting auto sales today is the credit crunch -- consumers simply can't get the loans they need to purchase cars.

Daimler Plants Close
null

"The personal finance crisis we're having is keeping people out of the market entirely," Bragman said.

Automakers worldwide have seen this year's economic turmoil batter their profits, but Ford and GM have taken heavier hits than their top foreign competitors.

While Japan's Toyota, which sold the most cars in the world last year, and Germany's Volkswagen -- the world's No. 3 auto seller -- managed to stay in the black, Ford posted its worst-ever quarterly performance in July, with an $8.67 billion loss, and GM reported a stunning $15.5 billion second-quarter loss.

GM and Ford -- which were second and forth, respectively, in world auto sales last year -- have defended their health. GM recently dismissed speculation that it was headed toward bankruptcy and both companies touted recently announced measures, including production cuts and the development of new models, designed to improve their financial health.

"If we work together to deliver the plan and create an exciting viable Ford delivering profitable growth for all, the external measures will take care of themselves," Ford said.

Richard A. D'Aveni, a professor of strategic management at the Tuck School of Business at Dartmouth College, said he's not buying either company's story. Both, he said, should seek bankruptcy protection.

America's hegemony in the world auto industry, he said, "ended a long time ago."

Beyond the Economy: America's Auto Woes

Experts say that it's not just current economic conditions that are hurting America's two auto giants.

Bragman said that American carmakers have always been dominant in the production of large trucks. But as gas prices rose, GM and Ford saw one of their key advantages fade, he said.

Page
  • 1
  • |
  • 2
  • |
  • 3
  • |
  • 4
Join the Discussion
blog comments powered by Disqus
 
You Might Also Like...