Global Economic Crisis

The program actually did stimulate auto sales-for Detroit’s foreign competitors. Toyota, for example, saw an increase in car sales of 6.4%. Among domestic manufacturers, however, only Ford saw a gain, rising by 17%. But what about Chrysler and General Motors, which are only still in business due to government financed life support.?

Even with “Cash for Clunkers,” Chrysler sales dropped by 15% and GM sank by 20%. And this is supposed to have been a “successful” economic stimulus program? If so, what in God’s name would have been considered a failure?

In desperation, GM has announced it will dump 1,600 domestic dealerships in the short-term, and ultimately eliminate 2,600, reducing its total dealership franchises by more than 40%. This is only part of an array of measures designed to reduce operating costs. More auto assembly plants will be shut down; additional layoffs will be undertaken while remaining employees will see their wages and benefits shrink further. However, in the wake of the financial storm that is wrecking the global economy, these last ditch and desperate stratagems are almost certainly doomed to failure. In the next several weeks GM will file for bankruptcy protection, shed several of its brands, and accelerate the death spiral that it is now locked in. With unemployment surging, not only in the United States but throughout the world where GM has significant market share, and credit essential for auto purchases being denied to consumers-macroeconomic factors that are far more relevant to the auto industry than brand elimination and dealership disposal-the extinction of General Motors as an industrial corporation seems all but certain. Possibly brands such as Cadillac or Chevrolet may survive independently or be absorbed by other auto manufacturers, but the behemoth known as GM is destined for the scrapyard of history.

While Teddy Roosevelt was completing his second term as U.S. president in 1908,the first GM automobile was manufactured. In 1954, General Motors saw its 50 millionth car roll off the Detroit assembly lines, at a time when more than half a million Americans worked for GM. Now, at death’s door, GM has announced that its dwindling workforce will shrink by a further 38%, reaching a planned level of 38,000. That represents a reduction of 93% from the 1954 employment figures!

The financial and political elites who dominate policymaking in America seem unperturbed. They apparently prefer having companies exist that engineer exotic financial derivatives than a manufactured product that is assembled by a skilled, well-compensated workforce. However, even with this melancholy certainty in front of us, I will always imagine a ride in a 1957 Chevrolet convertible as being infinitely more romantic than cruising the lanes on foot with a pocketful of securitized subprime mortgages. So, America, where does the economic road ahead lead us?

Rest in peace, General Motors.

When Toyota decided to create a luxury brand, Lexus, they did not merely slap a Lexus grill and some extra chrome on a jazzed-up Toyota; they invested in the most sophisticated engineering available to insure that a Lexus would be perceived by consumers as a first rate product. Chrysler, along with the other Detroit automakers, preferred to use common chassis designs and powertrains, and differentiate their brands with a different badge on the grill, and perhaps an opera window on their luxury models.

American consumers caught on, and began deserting the domestic car manufacturers in droves for the Japanese alternatives. Too late, Detroit began to recognize some of its mistakes. When the Global Economic Crisis exploded, demand destruction shrank the American automobile market by millions of units annually, at the same time that Detroit was losing market share.

Now the course of history is supposed to be reversed by, of all things, a bankruptcy filing. Is President Obama, as sincere as he is, really serious in believing that this is the path to a renaissance for Chrysler?

We are also informed that the Italian automaker, Fiat, will help to save Chrysler by offering its own automotive technology. The same Fiat that had a disastrous commercial experience in the United States, abandoning the American car market decades ago. Fiat may have excellent experience and engineering for the European car market, but to expect a merger with the Italian firm to prove more efficacious than Chrysler’s previous calamitous merger with Daimler-Benz, is simply whistling Dixie in the dark.

Chrysler is headed for oblivion, and the history books. The late “Tex” Colbert must be turning in his grave, aghast that the successful industrial behemoth he once ran so successfully is left with the forlorn hope that technology imported from Fiat is the path to salvation for a company that once stood at the top of the world in engineering excellence.

This epic is more than tragic. It is a metaphor for the reasons why the U.S. economy, once the center of manufacturing for the world, is in free fall collapse.

General Motors is a much larger carmaker, with a global presence and vast overhead. Its very size defines the essence of the problem being faced not only by G.M. but also by other global car builders, including Toyota, Nissan and Ford. Currently the world has the manufacturing capacity to assemble more than 90 million automobiles a year. However, the Global Economic Crisis has created a vortex of demand destruction in the car business, reducing global demand to around 50 million units. The overhead for maintaining this complex, global manufacturing infrastructure is staggering, and can only generate profits if sales match production capacity. With worldwide sales reduced to 50 million cars, no major car company can make money.

The only solution for preserving General Motors is to provide sufficient demand for its manufacturing capacity. This demand need not be restricted to cars; during World War II Detroit became the arsenal of democracy, as its assembly lines retooled to build the weaponry that helped defeat Nazi Germany and Imperial Japan. However, in 2009, political leadership appears to lack the imagination to see the potential of harnessing the productive capacity of the auto manufacturers in other directions that can facilitate global economic development and recovery. What we are left with are ultimatums that provide only two possibilities: bankruptcy now, or becoming “leaner” with the future possibility of insolvency still hanging like a sword of Damocles.

I do not think the Obama plan for preserving a domestic U.S. auto industry, as presently conceived, will work. At most, it may preserve fragments and echoes of what was once the mightiest industrial productive capacity on the planet. Unlike the Great Depression of the 1930s, in which industrial giants such as G.M. and Chrysler did survive and eventually prosper, the Global Economic Crisis is devouring what were once seen as the pinnacles of economic and industrial might. If G.M. and Chrysler are in fact doomed, along with much of what remains of America’s industrial capacity, this will be largely due to a policy decision that establishes the financial sector as the center of gravity for the U.S. economy, reflecting the vastly more significant taxpayer dollars that have been allocated to that sector, with far fewer strings than are being attached to the paltry aid given to Detroit.

How is it possible for the U.S. to rebuild its economy if the industrial sector, epitomized by companies such as General Motors and Chrysler, is largely sacrificed on the altar of Goldman Sachs, AIG, Bank of America and their ilk?

What began as a financial crisis in the U.S. housing and mortgage market has metastasized as a virulent global economic cancer. The U.S. economy is imploding, and taking down much of the world with it. In a tsunami of financial panic, central banks across the globe have been slashing interest rates to virtual zero, while simultaneously borrowing and printing trillions of dollars, which are being injected into failing banking systems.

With global financial arteries clogged, the economies of the planet are now cratering, with the United States economy in particular imploding at an alarming rate. A concrete example of this is the impending bankruptcy of the American automobile industry, which directly and indirectly represents the core of what is left of the domestic manufacturing industry in the United States. Ford, Chrysler and especially GM have told the U.S. government and its elected representatives in no uncertain terms that unless the government injects untold tens of billions of dollars into their virtually empty coffers, those companies will go bankrupt in a matter of months. GM has even indicated it could be forced to shut down within weeks.

With a federal budget deficit that has grown from the hundreds of billions to the trillions of dollars, where is the U.S. Treasury going to get these vast funds for the industrial bailout requests that are now piling on? Perhaps soon the retail sector of the American economy will be coming to Capital Hill, hat in hand. However, an infinite series of bailouts is not a solution to the global economic crisis.