Thursday, November 13, 2008

Steel and the US car industry

The US car giants General Motors,  Ford and Chrysler have been losing money for years. Then comes the credit crisis with car sales around the world "plummeting". It now appears that they are reaching the brink.

It seems to be "make or break" time for General Motors and the other big two, as congressional Democrats seek to add the car makers to the US treasury $700 billion economic rescue package.

A failure of one or more of the major car makers would have a huge impact upon employment and the economy in the US and around the world. The amount of employees directly working for the motor manufacturers represents a fraction of the jobs that exist in there supply and distribution chain, with everything from steel and component suppliers to car showroom dealerships.This of course is not just a US problem, as these companies are world manufacturers, and it's difficult to see any part of the world that would escape the impact of a failure.

It's impossible to underestimate the impact upon employment and the economy of a failure of the US car industry, and should any of them go in to bankruptcy, then there will be a "domino" effect, with businesses failing around the world, not least component and steel suppliers who will not get paid.

The car industry, and its component manufacturers (along with construction, currently stagnated), represent a huge percentage of the market for steel manufacturers and distributors. A failure would have a catastrophic effect upon our already beleaguered industry.

To quote Keynes " If you owe the bank a £100 you have a problem, but if you owe a million pounds, the bank has a problem".


1 comment:

Woody said...

I think a lot of people operate under the assumption that if one of the big three go under that car production will stop and therefore no more raw materials or people will be needed. Much like the steel industry itself, the auto industry needs to reshape itself. And, if one--or all--of the big three go under, there will be mergers. There will also be other car companies more than willing to meet the demand and will need to hire employees and buy raw materials to meet that ongoing demand. People will still need cars. It will just be a leaner, meaner auto industry that had to go through the same kind of shakedown as the steel industry went through and the airline industry is still going through. They need to shake loose excess production, re-shape their labor costs and they need to be more attentive to consumer demand. It's a crude form of Darwin Economics. The fittest will survive and evolve and the bloated will fail. Is it a bad time for that to happen? Sure. But, that does not necessarily mean they need or require bailouts. It just means they have to change the game.