Saturday, December 13, 2008

Fall of Three Auto major's, US

The fall of the Detroit’s Three Auto major’s General Motors, Ford and Chrysler could well be interpreted by fall of industrial base in US. That’s not necessarily the case.
First, we will head out our search for the reasons behind this failure.

During the recession time, companies customarily try to give discounts to draw customers. As per US National Bureau of Economic Research recession starts from Dec, 2007 in US. These three auto majors don’t have much option, other than slowdown their production or sell higher margin vehicles like SUV’s which carry 20 to 30 percent margin. But where are the Buyers?

First cause we found out is that, auto major’s annual spending on health insurance. Every business small and large has struggled with paying the health insurance costs of their employees. A mega-corporation like General Motors sees those problems amplified. GM spends $5 billion annually on health care for 1.2 million people of which only 150,000 of whom work for the company. GM, Ford, and Chrysler have a combined unfunded retiree health care obligation of more than $90 billion. Health care adds $1,500 to the cost of each vehicle. This facts shows us that successful economic models for these three auto major’s is virtually impossible and it is not something they can fix.

As it apparent from sub crime crisis, stock market fumbled to its lowest possible values, and Three Auto major’s stock price has ceased up to 70%.
The second major cause of the current auto industry crisis is the crash of the credit markets. It has made getting auto loan a difficult task, results in substantial drop in automobile purchase. The U.S. auto market fell 15% through the first 10 months of 2008 and sales in October plunged 32%. Why? The lack of available credit for potential car buyers and on the other end, the industry cannot get loans to cover the dramatic loss in car sales, Second cause.

These three auto majors concentrated more on lucrative cars rather than building cost effective and environmental friendly cars. Even though, there is no hard rule to do so, they failed miserably to predict the Future communal needs. The foreign players like Toyota utilized this opportunity and confined the market.

The above mentioned facts have the same source: corporate controlled government. The health insurance industry did not want the more efficient single payer national health insurance. The finance industry wanted to be free to treat the stock market like a casino and did not want to be regulated. And, the auto industry did not want to be told to build more efficient cars. Corporate-government is the root of the problems we face today.

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