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US car industry collapse rocks the City
Jonathan Prynn and Robert Lea12.12.08
TURMOIL returned to the City today after the collapse of a bail-out plan for America's near-bankrupt car industry.
The failure to agree a $14 billion rescue for General Motors, Chrysler and Ford sent share prices plunging around the world after weeks of relative calm and put thousands of British car jobs at risk.
● High street bank HBOS said it was having to write-off an extra £2.8 billion in bad debts because of "increasingly difficult market conditions".
● The FTSE-100 was down 134.96 points, or 3.3 per cent to 4253.7, wiping £32 billion from the value of shares.
● Royal Bank of Scotland was 9.7p down at 56.4p, leaving the taxpayer £2 billion worse off. HBOS was off 9.7p at 77.9p, Lloyds TSB was 14.8p lower at 143.2p and Barclays dropped 13.1p to 148p.
● On Asian markets, the Nikkei in Tokyo was down more than five per cent and Hong Kong's Hang Seng almost seven per cent lower. Analysts said Wall Street is likely to nosedive when trading starts in New York this afternoon. On the German stock market shares in General Motors were trading 48 per cent lower and Ford was 31 per cent down.
● Bank of America, owner of Merrill Lynch, said it was cutting 35,000 jobs, about 11 per cent of its workforce. The cull is likely to lead to about 1,000 redundancies in London.
America's once mighty car industry was left staring into the abyss after the emergency bail-out plan fell apart in the Senate.
Talks between Democrat and Republican senators broke down late last night over the issue of pay cuts for US auto workers.
The Bush administration said it had been the "best chance to avoid a disorderly bankruptcy" of America's "big three" car makers.
There is thought to be no hope of a political deal before Barack Obama's swearing-in as president on 20 January.
By then two of the "big three" - General Motors and Chrysler - are almost certain to have run out of money with the third, Ford, following close behind.
They will drag down an industry employing or supporting around three million US workers.
The bail-out, backed by the Bush administration and Mr Obama, foundered because not enough Republican senators could be persuaded to prop up an effectively bankrupt industry.
Harry Reid, the Democrat senate majority leader, threw in the towel after a day of intense political wrangling, saying: "It's over with us."
Republican senator Bob Corker said the two sides had been "about three words from a deal", but that the United Auto Workers union's rejection of wage concessions before 2011, when its current contract with the car makers expires, had kept them apart. The bill allowing money to be injected into the car industry passed through the House of Representatives on Wednesday.
A White House spokesman said that no decisions have been made in the light of Congress's failure to pass it, but said: "We will evaluate our options."
The deal would have given the three firms access to emergency funding. They originally called for $34billion between them.
In Britain, a collapse of General Motors threatens 5,000 Vauxhall workers at plants in Luton and Ellesmere Port on Merseyside, as well as thousands more in the supply chain and allied industries.
The Vauxhall workforce is already slimmed down after thousands lost their jobs in waves of culls in the Nineties and earlier this decade.
At Luton, around 2,000 remain employed making Vauxhall vans like the Vivaro as well as Renault vans under licence. Another 3,000 are employed at Ellesmere Port, the home of the Astra.
Both workforces have been on shorter working hours since October after Detroit bosses demanded production cuts following collapsing British sales.
UK new car sales slumped by an unprecedented 37 per cent last month. Sales of Vauxhall cars, some of the most competitively priced in the market, were down 38 per cent.
Reader views (17)
I think China is going to find it's markets are going to dry up as well... do you think the $40 a month china man is the one buying the 42" Plasma TV's?
- James, Croydon, England.
I read somwhere in the past that Carl Marx,.....Or was it Lennin that said Capitalism would eventually collapse in on itself?.......Or have I got it wrong?
Not being a Marxist or Communist, or whatever else "ist" I would like to know whether this really is the final death throes of Capitalism?
Problem is,I can't see what is going to take it's place!
The Global automobile industry has been over producing for years, and judging by the stockpiles shown in pictures in the media, maybe the "Limit to Growth" scenario has finally arrived? (Including Population Growth)?
One of the problems with the Automobile industry is, cars are/were seen as a Fashion/Status statement, the bigger the car, the bigger the statement!
On a personal note,as far as I am concerned, my M Reg.1600 Rover gets me anywhere I want to go, and when that finally gives up the ghost, I'll get another 5 year old car and use that until it gives up the ghost!
But, to be honest,I mostly use my 50cc Noddy Bike 99% of the time, no problem parking, no problem with traffic jams, 100 odd miles to the gallon,..... the downside?......None unless you consider getting a bit wet when it rains, and I never use it in the snow & ice, common sense really!
I'm afraid that there is going to be a very very painful re-adjustment to Joe Public's expectations in the very near future!
GERONIMO
- Geronimo, LONDON MIDDLESEX
If you give the car giants money, it will be used for corporate 'bonuses', team-building events (aka a damn good bash at the taxpayers expense), in fact, everything taxpayer cash shouldn't be used for. Look what happened in the case of HBOS and RBS!! Once industry knows it can rattle the begging bowl successfully with one administration, the 'one-off' promise goes out the window.
The US car industry, as with the UK car industry or any industry for that matter enjoys good and lean times and if they're properly managed, will always have a 'what-if' forward planning protocol. This 'bail-out' plea is merely testing the waters. Taxpayers have bailed out enough on both sides of the pond.
- Joannie, London, England
The Bailout plan is not the solution to save the Big 3. The monwy would only keep them afloat for a short time and the car makers will go down anyway. It's a matter of time. So why waste the money/ How about the employees of the Lehmann Brothers? Did the US government give them any help? The money is better spend to tackle the future mass unemployment !!
- Kacey, Stuttagrt, Germany
Dont worry, somehow, someway enought money will appear to keep the Auto's going until the end of January. It will ultimately be a tax payer disaster, but what the heck, Mr Obama can walk on water and will rescue not only America but the rest of Western world. We are all doomed. But we were anyway..... A detroit worker earns $40 an hour, a Chinese worker earns $40 a month. Guess who is going to keep his job next year?
- Colin Bond, London
The primary reason that GM is not COST competitive with Toyota etc, is the UNION wages and benefits, and work rules.
- Trunk, US
Ali London
sorry must have missed this one - which Brown bail out plan for the UK Car industry (or any other industry) are you referring to...clearly you are ahead of the rest of the press on this......
- Martin_Clerkenwell, london
Once again, a union refuses to face basic economic facts and take pay cuts, with a result that a huge number of workers will end up redundant with no pay at all. Whose side are the unions on?
- Claire, Londn
I think the Republicans were being quite fair in expecting the car workers to reduce their pay to the levels of those car workers employed by foreign car companies. It seems reasonable to me that they should do so in order to secure their jobs. At the same time they could also try and match the quality standards of the foreign owned companies. In other words work a little bit harder for a little bit less.
- Roger Slade, Winchester, Hampshire, England
The US-built Chrysler we bought in Britain some years ago was priced in the same number of pounds as it sold for dollars in America- a huge hike in price. Maybe these companies are paying the price of being greedy.
- Tim, Shanghai, China
We knew this was coming. The market adjustment in cars is 20 years overdue. Hydrogen is the way forward. Cars are a luxury for most people and nothing else, the world survived easily enough without them 30-40 years ago.
Build me a hydrogen powered car with an outlet plug I can use to attach to power my house and I'll get off public transport. Have you seen the power a hydrogen fuel cell car produces!! Greed greed greed is the cause of all this commotion - ban stock markets, ban trade in stocks. Lend money, pay interest, full stop. Our pensions are worthless so who other than fat bankers actually benefits from share trading?
- Mark Beale, london, england
If they can't compete they go under. This should be the rule in all countries. Sad but true.
- Frederick, London UK
Any bail out would have merely subsidised inefficiency. A Chapter 11 solution is preferable as it will contribute to a sustainable industry in the USA by virtue of streamling, prioritising R & D, and delivering quality products which suit the marketplace rather than the myopic demands of Wall Street.
- Peter, Pirot, Serbia
I have a hard time blaming the auto makers when fuel effecient and alternative fuel vehicles have been rejected by the public. In 1991 I purchased a three cylinder, 60 miles per gallon vehicle from GM. These vehicles were not popular and discontinued. Perhaps if we had to purchase fuel by the liter instead of the gallon Americans would reconsider.
- John, arizona, usa
Hello London,
The muck has hit the fan and it's once again heading our way .... fast?.
Who needs cars "GAS GUZZLERS" in a time of globle crisis, you can't eat them?.
Yes building them provide jobs but if know one wants to buy them what can you do.
Hang on it's going to be a hell of a ride while the world adjusts the horse and cart are coming back ..... Merry Christmas.
- John.L., Scarborough N.Yks U.K.
So much for Gordon Brown's claim that the rest of the world are following Britain's lead?...First Germany questioned the strategy of simply chucking money at the economic problems of companies...and now America's senate have refused to follow Gordon's "bail out" plan in regards to their main car manufacturing industry - who employ thousands - if the US car manufacturing industry goes down then (in a stark reminder to the first depression of the 1930s) surely we will MOST definitely be in a fully fledged depression... bad times people...
- Ali Sichilongo, London
The Detroit big three were in trouble long before the recession. Wall Street demanded short term profits which stopped R&D spending for new relevant cars, the Unions are paid well over the rate of other non-unionized car workers elsewhere in the USA, and would not change their terms, and the executive board are out of touch and arrogant.
Hopefully the result of this ill-advised bail out collapse will be a Chapter 11 situation leaving the administrators the chance to restructure the companies to a more relevant business model that will not be a constant drain on tax payers, and will produce cars that people actually want to drive, at prices they can afford.
If that happens through Chapter 11 the stock markets will rise again, most car workers will still retain their jobs even if only on reduced wages, and the US will show the world that governments need not run current account deficits beyond their ability to borrow.
- Stephen Rothbart, Prague, Czech Republic
