The Worst is Yet to Come

  • SumoMe

If you were of the opinion that the worst phase of the world financial and economic crisis was over, then take a step back and think again. The worst is yet to come. This time it will be bigger and will be accompanied by many more people loosing jobs and livelihood. Earlier, it was the collapse of Lehman Brothers, the banking icon of America, that took the world by a storm and now it is predicted to be the fall of the General Motors, the icon of the American automobile industry.

From the looks of it, it seems that the day is not very far when three of the biggest American automobile companies will come crashing down. The signs are already there. GM, Ford and Chrysler are struggling for survival. With sales falling at an alarming pace due to drop of demand the companies are taking drastic and desperate measure in the effort to save their sinking ships.

The US auto sales fell by 27% in the month of September. The continuous drop in sales over the last year has affected the big three of the US Automobile industry. They are losing around $2 billion every month. GM has asked the American government for 10 billion dollars to help it to acquire Chrysler which is heading for the dead pool. The American Congress has already allocated 25 billion dollars over the next 18 months to help the Auto industry to spruce up its engineering capabilities. The crisis has been largely due to the drop of SUV sales when the price of oil rose drastically and then the fall out of the financial crisis which has meant fewer loans are available to purchase cars.

The crisis is not just limited to America, now with Volkswagen being bought over by Porsche. There is likely to be further consolidation in Europe with companies like Fiat being bought over. Toyota is likely to buy out most of the Japanese and Korean manufacturers.

Desperate times call for desperate measures and GM is doing just that by making an attempt at acquiring Chrysler. GM hopes that through this acquisition it will be able to bring in the additional revenues from Chrysler and also reduce costs. It will hopefully also make the combined entity too big for the government to ignore a bailout request if the situation arises in the future. If GM and Chrysler are unable to merge and if the federal government does not provide help, the two companies could run out of cash by the end of the year. Both the companies have been cutting costs at every front. GM cut 1600 jobs in the month of October and has also put its Hummer brand up for sale.

The Auto Industry in North America employs 5 million people either directly in production or in various related services and the bankruptcies in Detroit could affect the lives of many. It is suspected that the fallout would be even greater than that of the banking collapse.

GM had a loss of $ 38 billion last year while Ford made losses of $2.7 billion. Since 2006, the three largest manufacturers have cut more that 100,000 jobs. Are these signs of the trouble that is around the corner? I think they are. Time will tell us anyway.

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