How Come ‘Big Three’ Automobile Manufacturers are on the Brink?

The three major American automakers–General Motors, Ford and Chrysler–are the significant symbols of American auto-industry, but recently face bankcruptcy. And they are pleading for a $25 billion bailout to help them go through this crisis and not go bankrupt.

GM’s CEO Rick Wagoner said at a Senate meeting that the problem does not stem from mismanagement or lack of vision on the part of the industry, but is the direct result of global financial meltdown. But analysts believe it’s not only because of the external economic problems, but also because of the inner problems.

As for the external factors, the increase in oil price and the financial crisis had been great shock to the American automobile industry. In the past few years, crude oil price kept on increasing, and hit the record hight of $147.27 a barrel on July 11th on the New York Mercantile Exchange. Under this kind of influence, because of the high price, consumers became less interested in the American-made high-oil-consuming autos. As a result the Japanese-made and the Korean-made low-oil-consuming autos become big challengers to the American auto industry.

During the second half of this year, oil prices began to fall back, but the sub-prime crisis has been turning into full-scale financial crisis since mid-September, which presented the American auto industry with a new round of attacks. The falling of house prices, the credit crunch, continuous increase of unemployment and so on resulted in the consumption decrease in auto industry. In the third quarter, General Motors sales drop by 21%, which was worse than October’s sales by 45%.

The increasingly worse and worse economic and financial environment put great pressure on the American auto industry, which is a typical case of the American real economy being affected by financial crisis. There are also some internal reasons for the “Big Three” being on the brink.

Firstly, the Big Three’s costs kept on increasing, which put great pressure on the business. The data reported by the American Center for Automotive Research show that, in comparison with Toyota’s and Honda’s U.S. plants in America, native American auto plants pay obviously higher hourly compensation. Furthermore, the latter is heavily burdened with retirement pensions and health care obligations; and the health care benefits cover employees, retirees and dependents, the cost of which can reach up to tens of billions of dollars.

Secondly, there are some problems with the Big Three’s internal structures. Take GM, for example: they always invest great sums of money on product research, production and selling, and not all products are best-sellers. Toyota and Honda, on the other hand, only focus on a few best-sellers. And GM has more than 7000 franchisers, which cost more in advertising, storage and service.

During this American auto plight, there have been great debates over whether or not to give [auto companies a]bailout. At first, the Senate decided to vote on November 20th, but then canceled and planned to reconvene at the beginning of December, when the Big Three are required to hand in a more detailed plan about how they will use the bailout money.

Analysts believe that the auto bailout is still being considered. But even if the Big Three get the bailout, they will have to reform themselves. And only in this way can they meet rivals and the challenges in the present economic envinronment.