US auto makers might cave in before Obama takes office

07 November 2008

Even though President-elect Barack Obama, during his campaign, pledged to help the heavily distressed American auto industry, many US auto makers may find themselves in deeper distress before he finally takes office.

Former Michigan government and president and CEO of the National Association of Manufacturers John Engler was quoted by the media as saying that Obama would take office by 20 January, ''and that's a long time in the life of these companies at the moment."

General Motors Corp has said that it is planning to come up with new cost cuts when it reports its quarterly earnings before the weekend on Friday. Quarterly results of both GM and Ford are expected to be gloomy. Both automakers extended their congratulations to Obama on his election, while linking the overall US economic weakness to Detroit's deteriorating financial prospects. Most US automakers are hoping against all odds that the Bush administration, which is reluctant to sign off a bailout package for the car companies, would in fact act before handing over power to Obama.

With General Motors seeking to merge with Chrysler, that is the biggest sign that for the American auto industry, survival is the only issue. And the key to survival seems to be staying solvent in the face of declining sales, and asking the US government for a bailout package. The question that is resonating in the US is whether the now-fabled Big Three of the US auto industry are actually worth saving.

In September 2008, Congress had approved $25 billion in loan guarantees for American automakers (See: US House of Representatives approves $25-billion loan package for American auto industry), with rules for their disbursal still in the making.

Auto companies and their lobbyists are now planning to scale up the urgency of this funding needed by the industry, planning to bank on underscoring the belief that its immediate problems are not of its own making, but are instead on account of the global credit crunch and that the industry's survival hinges on federal aid.