Big Three in big trouble: meltdown in Motown

Published: 17 September 2008

At the end of last week CAR spoke to some senior car industry analysts at the big investment banks. What they told us, privately, was shocking. They said that while they could once be pretty certain that the US government wouldn’t let one of its Big Three car makers go bankrupt, they now just didn’t know. And they agreed that letting one of them go to the wall might even be a good thing.

At a stroke, it would take a lot of excess capacity out of the system and might help secure the future of the remaining two.

How Lehman's bankruptcy will affect the auto sector

This was last week, remember; before the US Government risked global financial meltdown by letting Lehman Bros go bankrupt as a warning to the others. Letting GM or Ford or Chrysler go under would be far less risky. 


And it seems far more likely now. After Fannie Mae, Freddie Mac and now AIG, American taxpayers don’t have the appetite for many more bailouts. The further tightening of the credit crunch after the Lehman fiasco makes it even harder for the Big Three to borrow money to stay afloat. And the longer and deeper the downturn, the more likely they are to run out of cash.

So how bad is it for the Big Three?

Pretty terrible. GM lost $15.5bn (£8.7bn) in the second quarter of 2008. All three regularly post monthly sales figures down 30 percent on the same month last year. They’ve been hit by a genuine double-whammy. First, the economic downturn has seen almost all the car makers' sales slump by single figures.

But high oil prices have hammered the Big Three particularly hard; the bulk of their sales and profits in their home market are in the big, thirsty SUVs and pick-ups that US consumers are deserting in droves for smaller cars from Toyota and Honda. 

How can Ford, GM and Chrysler survive the downturn?

Only by building the smaller, more economical cars their rivals already do so well. The US government has already offered at least $25 billion  (£14bn) in low-cost loans to help them dump trucks, and switch their factories to building better, cleaner cars. Ford will start building six European-designed cars in the US, including the Fiesta.

GM yesterday unveiled the intelligent Volt and can share small cars with its European and Korean divisions. Privately owned Chrysler looks a lot more exposed, with little new product coming until 2010 and no wider family to help.


So will the Big Three become the Smaller Two? Ask us again in six months. Right now, nobody knows.

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By Ben Oliver

Contributing editor, watch connoisseur, purveyor of fine features