As global financial slowdown intensifies, the auto industry in the US finds itself in the mire. Sluggish sales, staling credit, rocketing losses and shrinking cash flow have pushed three big US auto makers to the verge of bankruptcy. To get government aid, senior management from GM, Ford and Chrysler tried to persuade US congress to pass a bailout plan before it adjourns to meet their urgent needs.
However, the attempt ended fruitless; as Congress and the White House shifted responsibilities onto one another claiming the action plan proposed by the three auto makers was not that convincing. It will be a new focus in the US financial crisis to see whether the US government is going to extend a bailout plan to its shaky auto industry after issuing a package that covered banks and insurance companies.
The US auto industry, characterized by GM has long been regarded as the pillar and icon of US manufacturing. The question over whether Washington would turn a blind eye and let three auto makers go into bankruptcy has sparked a nation wide dispute. Some financial institutions and insurance giant AIG got government aid because their failure could lead to system risk throughout the entire credit market. The Bush administration believed that the financial institution played a role like that of the public facilities, like the water and power; no countries could do without them. Bush’s words can be understood, as the bankruptcy of the auto industry would not bring as much disaster as financial failure could bring to the US economy, and even the world economy at large.
The Democrats in favor of the bailout plan maintain action should be taken immediately. They insist that the breakdown of auto industry could affect other trades through supply chain, finally leading to millions of workers losing their jobs and possibly bringing the unemployment rate up by ten percent.
Additionally, the government may have to cover the pension fund for retirees of the auto industry if it goes into failure, which would be an unbearable blow to a US economy already beset with difficulties.
The breakdown of three auto giants, whose supply chains are all over the world, could bring about a severely negative impact worldwide. Moreover, many financial institutions have auto bonds. According to statistics, the credit default swaps (CDS) of the three auto giants and financial institutions could amount to 290 billion US dollars. With companies’ performance worsening, the insurance-related contract value has doubled in recent months. Many financial analysts are worried about the possible bankruptcy of auto the industry in light of the deteriorating credit crisis.
Congress and the White House reached an impasse due to a different understanding on the graveness of the situation. The White House held that 25 billion dollars, which had originally been planned for making auto industry more environmentally friendly, could have been the life-saving straw. But the Democrats opposed the idea and hoped to allocate an extra $25 billion from the $700-billion package for rescue effort, making a total of $50 billion for the ailing auto industry.
The White House denied the $50-billion proposal by maintaining the financial stimulus package would not be so effective and not helpful for market recovery particularly if every industry that was in the mire called for help.
The dispute also touches upon the future development of auto industry in the US, and the financial crisis is blamed for its predicament. Surprisingly, the US community and media show no mercy for the dilemma, instead they believe it is a long-standing problem which is a result of bad management, lack of innovation and loss of competitiveness.
Congress members feel there are only two options for the auto industry, painstakingly carrying out reforms or waiting for breakdown. The government is not going to give money until they know the feasible plan for the auto industry and where it will go. If the three auto giants can not submit a feasible plan before December 2, the deadline set by the Congress, they will have to support themselves before Obama officially assumes office next January.
A bailout plan for the US auto industry will not be a free lunch regardless of what measures the Obama administration might take. To ensure all the tax payers get reward, any possible planed aims at revitalizing the competitiveness of the auto industry will have to bring stricter management and cuts in trade-union benefits. However, the trade union has always been a faithful supporter for the Democrats, and that problem is one of the challenges Obama will face while rescuing the auto industry.
By People's Daily Online
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