The US automotive industry has long been plagued with problems. These problems have been exacerbated by the recent financial meltdown resulting in a bleak future for American car manufacturers.
A variety of drivers combined to drag this floundering industry down further. Known for inefficient, cheap vehicles, and for not building what consumers want, it has plugged along with an uncommonly-American attitude of ‘you buy what we make’. For years, Japanese manufacturers such as Toyota and Honda have been developing alternative-fuel vehicles, while US manufacturers neglected this critical market.
In December 2008 Al Gore expressed this point when he said, “It's really tragic that General Motors, for example, allowed Toyota to get a seven-year head start on the hybrid drive train in the Prius that is now positioned to really be a dominant feature of the industry in this century."
2003-2008 marked a half-decade long oil crisis, with a barrel of crude oil hitting $147.30 in mid-2008. This is six times the $25 price which held steady for the past quarter-century. Much of this was driven by war and tension in the Middle East, oil price speculation, a reduction in petroleum reserves, and fears of peak oil, or the idea that the planet has reached a maximum capacity of oil extraction, resulting in terminal decline. Only a global recession could bring prices back down, which fell below $40 in late December, 2008.
As the price of oil rose, the financial crisis resulted in a widespread lack of liquidity. Sub-prime loans reached a point where people could not pay for their homes, and without a roof over their heads, new cars were the last thing on their minds. And those that may have been looking for new car financing were largely unable to buy with bank loans drying up.
The meltdown meant that US Congress passed a $700 billion bailout which was initially created to rescue financial institutions by buying up their bad debt. Then the car manufactures thought they should get a piece of this package, and asked for $15 billion. GM is to receive $9.4 billion and Chrysler will get $4 billion. Ford is financially strong enough that it is not receiving help now.
General Motors executive Bob Lutz said, “…this is simply a bridge loan which will get us into the next administration, where we hope we can do something more fundamental. Because the main problem is the lack of liquidity and the lack of revenue flowing in as we're facing absolutely the lowest, lowest car market in history…”
It’s not only the American automakers that are asking for help. Canadian and Mexican car industries have jumped on the bandwagon. The Canadian government is putting up about US $3.3 billion to save jobs there. About 400,000 people in Ontario, Canada depend on this industry for their livelihoods.
Canadian Prime Minister Stephen Harper referred to it as, “…a regrettable but necessary step to protect the Canadian economy." These are loans which must be paid back. "Our hope will be to recoup much, if not all, of this money," Harper added.
Ontario Premier Dalton McGuinty said, “For the time being, we choose to act to keep these companies afloat. We cannot afford, either in the United States or Canada, a catastrophic short-term collapse. The automakers must change the way they are doing business in a very serious way."
In Mexico, the bailouts up north will help, but will not be enough to finance new car buyers. They need about $3 billion for such financing – it would go both to dealers and buyers.
The president of the Association of Automobile Distributors in Mexico, Jose Gomez Baez, said, “The problem of the financiers is a problem not of operation but of liquidity." He added, "In the month of November, we have a drop of about 20 percent and, in the month of December, we will have a drop of about 22 percent. That will give us a reduction of 1.03 million units, numbers not seen since 2002.”
Porn moguls Larry Flynt (founder of Hustler magazine) and Joe Francis (creator of Girls Gone Wild) are asking for a $5 billion dollar bailout as well. They say that the troubled economy has hurt the pornography industry, with sales of x-rated DVDs down 22%.