Wednesday, 3 December 2008

simple cold

Following my recent post about US auto-industry it now seems possible that Washington may sling a lifeline to the big (General Motors, Ford and Chrysler) three after all.
If this happens, what it will demonstrate and quite clearly, without any doubt or question, is the role being preformed by capitalist governments in this world economic crisis. Its one thing for a government to intervene in a banking crisis and throw billions if not trillions of Pounds and Dollars of money into an enclosed chamber or raging furnace. It’s quite another, to start poring billions into a manufacturing industry that without help would otherwise go to the wall. But if that was to happen, some say it would likely trigger off a possible depression with thousands more out of work, more business hitting the brick wall, especially auto-industry related and may even be the cause of a domino effect throughout industry, dragging the rest of the economy down with it. This being a serious threat to capitalist stability as a system will force any capitalist government and in this case the US - to act and protect its capitalist interest, that’s the system, the capitalist system and its interests, that subjugates us all – profit!

One look at the grim numbers point to the deep pit Detroit finds itself in. Slashing prices to move cars to a public traumatized by contracting consumer credit, plunging home values and rising unemployment. Economists warn this is not likely to change any time soon. This recession gives whole new meaning to the term globalisation, all over the world; workers are losing their livelihoods, forcing their living standards down. Repossession of homes is only part of the picture frequently reported on in the media almost without mentioning the impact it has on people’s lives –Yet there is a human cost that will have an impact on our lives in numerous ways and yet go unnoticed - the growing pressure on families and the likelihood of larger numbers of families breaking up. This isn't just a tragedy for small numbers of people; it has huge implications for all of us.

Personal debt is more likely to build up during a recession and we should understand the part that it plays in family break-up, which in turn causes increases in drug abuse, failed education and economic dependency. Most figures show that family break-up leads to fewer life choices for children and an increase in future problems for them. A child from a broken home is 75 per cent more likely to fail at school, 70 per cent more likely to be a drug addict and 40 per cent more likely to have serious debt problems. Many of the voluntary groups who work with couples in danger of breaking up say that the families they were helping had not realised their problems began with financial worries, which themselves were often compounded by periodic bouts of unemployment. Only when they looked back over the breakdown of the relationship did it become apparent.

Returning to the theme of my thread and its main point the role of government in this crisis, we can see this desperate attempt in the US of the automakers making their second run at Washington, returning to Capitol Hill with detailed plans after an earlier appearance failed to convince lawmakers to extend aid. The plans are being submitted to the House Financial Services Committee and the Senate Banking Committee, where the Big Three CEOs will testify later this week. The Ford CEO Alan Mulally, Chrysler CEO Robert Nardelli and GM chief Rick Wagoner will reportedly drive to Washington for their Capitol Hill testimonies after being criticized for flying in private jets to testify in late November.

The auto makers presented wide-ranging restructuring plans to Congress in hopes of qualifying for a combined $34 billion in low-cost loans from the federal government. The auto makers, struggling to remain viable as they rapidly burn through cash, also announced steep declines in U.S. sales for November, underscoring the desperate situation facing the industry. Sales in November fell to their lowest annualized rate since October 1982, according to Autodata Corp. The annualized rate stood at 10.18 million in November, down 37% from a year ago.
Each of the top six auto makers on the U.S. sales list posted declines in excess of 30%, with three of them showing declines of more than 40%, as economic uncertainty and tight credit weighed on consumer sentiment. But get this Chrysler, GM and Ford have recorded sales declines of 47%, 41% and 31%, respectively.

So what are the plans in exchange for a government bailout?

General Motors Corp. (GM), the largest of the Detroit Three, said it will shutter more factories, slash executive pay and axe some of its brands as it seeks $18 billion in loans. The company, which once again rejected bankruptcy as an option, said it runs the risk of running out of the money it needs for operations by year's end without a cash infusion of $4 billion this month. GM also said it will negotiate with bondholders to lower the company's debt costs, and will discuss concessions with the United Auto Workers union.

Ford Motor Co. (F) seeks access to up to $9 billion in government loans, though the company - which has a better cash situation than its domestic peers - said it wouldn't tap the credit line unless business conditions worsen or a bankruptcy by another auto company increases financial pressure. Ford, which hopes to restore profitability in 2011, is boosting production of small cars and increasing spending on new technologies. Ford will also work with the UAW to cut costs further.

The chief executives of GM and Ford, stung by the public relations mess caused by recent comments at congressional hearings, said they will be willing to accept salaries of $1 a year. Ford plans to sell its five corporate jets, while GM will stop using corporate jets.

Chrysler is requesting a $7 billion bridge loan by the end of December. The company, which estimates its cash on hand could dwindle to $2.5 billion by year- end, said liquidity could drop below necessary levels by the first quarter. The company said it will continue to improve its cost structure, streamline its operations, introduce more-fuel-efficient products and focus on alliances as part of its restructuring.

It was interesting what GM sales chief Mark LaNeve had to say of the sales environment -"I've never seen anything remotely close to this,” adding that it was "breathtaking" to see declines of this magnitude across the board for auto makers.

The global financial crisis has not bottomed out yet. The impact is spreading globally and deepening, "Excessive bankruptcies and business closures will cause massive unemployment and stir social unrest" according to Zhang Pin, China’s head of the national development. Events are moving briskly in China too. Towns and villages in China have been torched by rioters this month in pitched battles with police. Violence has spread to the export hub of Guangdong as workers protest at the mass closure of toy, textile, and furniture factories. Last Saturday, about 300 striking cabbies in Chaozhou, a city in Guangdong, went on a rampage, venting their fury against illegal cabs and smashing the taxis of drivers who refused to go on strike.

The rage of China's taxi drivers has won them a victory. Now, officials in Guangdong province in southern China have slashed the monthly rental that taxi drivers cough up by 800 Yuan. China’s state capitalism run through its communist government joins with the rest of world capitalism, by either baling out or using force to prop up a system that’s caught more than just a simple cold.

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