Global Economic Crisis May Doom Detroit Automakers
Contrary to the image politicians and critics have created regarding GM, Ford and Chrysler, all three have sharply reduced their payrolls, while increasing productivity through enhanced use of robotics in manufacturing. While the domestic manufacturers are criticized for producing fuel wasting SUVs, the critics conveniently ignore the fact that supposedly more professionally managed foreign rivals, including Toyota, Honda and Nissan have also introduced large SUVs. BMW and Mercedes-Benz built assembly plants in the Southern United States for the sole purpose of building large, expensive luxury SUVs.
The primary reason why Detroit is facing extinction is the ongoing global economic crisis, which has created vast demand destruction throughout the consumer economy, especially regarding hard durable items such as cars. The concomitant world financial crisis has created a credit crunch that inhibits the ability of the big three American car producers to weather the impact of the global economic crisis until it has receded to the point where consumer demand for automobiles has sufficiently recovered.
The only government solution that would work would be to substitute for the demand destruction of the current economic crisis with hundreds of billions of dollars in direct purchases related to infrastructure. The precedent for this is World War II, when the U.S. government required the automakers to stop all civilian car manufacturing, while retooling to fill vast government orders for defense equipment. It was the direct government purchases from major American manufacturers, in particular the auto industry, which not only ended the Great Depression, but also led to the long-term ascendancy of the U.S. economy.
Anything short of a World War II style government mass purchasing program will doom the automobile industry to financial implosion, kept on life support only as long as the government is prepared to borrow money it cannot generate from current revenue. With the worsening global economic crisis, it is unlikely that perpetual government deficit spending to prop up failing industries is a sustainable economic model.
For both the auto industry and the U.S. economy in general, the outlook for 2009 is becoming increasingly dark and gloomy. Short of radical governmental intervention similar to what occurred during the Second World War, Detroit’s once-proud automobile industry may be fated to being the iconic casualty of the global economic crisis.