WHAT FINK MIGHT DO WITH BGI - FTSE

US AUTO SECTOR: CAN IT BE SAVED?
6
Market Leader
Chrysler, Ford and General
Motors, the iconic Big Three
automakers, account for just
over half of all light vehicle
production and slightly less
than half of all light vehicle
sales in the United States. Even
so, they are in dire straits. The
rest of the US auto industry—
which includes Honda, Toyota,
Nissan, Hyundai, BMW, and
other foreign nameplate
producers—have been making
more products that Americans
want to buy and will endure
this recession without
subsidies because they have
more efficient cost structures.
So why is the US government
so intent on ploughing $25bn
into the US auto majors? Ian
Williams reports.
CLUNKING SUBSIDIES
MANY PEOPLE REMEMBER
US president George HW
Bush being sick over the leg of
the Japanese premier Kiichi Miyazawa.
Few, however, recall the occasion.
President Bush was in Tokyo with the
chiefs of the BigThree US automakers to
plead for self-restraint from the
Japanese auto manufacturers, which
were roundly beating Detroit on its
home turf. Robert Monks, of Lens
Governance Advisors, a long-time
scourge of auto executives, sees it as an
iconic incident; the writing on the wall
for potential investors in the Big Three:
“There still isn’t full appreciation of how
the Big Three have been subsidised and
protected by the Federal political
establishment—in both parties.”
Monks points to Congressman John
Dingell, the dean of the House of
Representatives, who, he claims, has
United States Department of Energy Secretary Steven Chu (right) talks with Ford Motor
Company chief executive officer Alan Mulally during a news conference in Dearborn, Michigan,
on Tuesday, 23rd June 2009. Chu announced the Energy Department will lend $5.9bn to Ford
and provide about $2.1bn in loans to Nissan Motor Company and Tesla Motors Inc., making
the three automakers the first beneficiaries of a $25bn fund to develop fuel-efficient vehicles.
Photograph by Paul Sancya for Associated Press, supplied by PA Photos, August 2009.
helped at every stage to perpetuate US
automakers’ inefficiencies, “whether it
was stalling fuel efficiency measures or
emission reduction rules”. Monks adds:
“For years, almost the only people who
bought American cars were the
government and rental agencies—
which were owned by the makers.Then
they had to sell the car-hire companies
and so people rented Toyotas. In the
end they were destroyed by incest, as
their ultra-cosy relationship with
government protected their
inefficiency. Talk about unions, legacy
costs? It was just a fig leaf to cover bad
managing and bad engineering.”
It was far easier to hire lobbyists in
Washington than to engineer lower
emissions or more fuel efficiency. For
decades, industry lobbyists
successfully resisted stiffer Corporate
Average Fuel Economy (CAFE)
standards for sedans and managed a
complete runaround them anyway by
getting tax breaks and complete
exemptions for the SUV (Sport Utility
Vehicles)—which are essentially
heavy, lumbering trucks disguised as
passenger vehicles. Detroit made
much more money on the latter until
rising oil prices brought them down to
earth with a thump as heavy as the
lead which, incidentally, they had also
resisted removing from fuel.
Consequently, in 2008 the Big Three
fell below 50% market share for the
first time in living memory, to 47.4%,
losing primacy to imports and foreign
transplants. Moreover, for the first
time in almost a decade,“light truck”
sales last year fell below the sales of
higher miles per gallon (mpg) sedans,
on which the US industry had all but
given up. The credit crunch caused US
sales to drop from 15 million vehicles
a year to 9.5 million as the financial
crisis dried up liquidity for consumers
and companies alike.
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