Impact of GM, Chrysler on auto industry

Jean Jennings, editor-in-cheif of Automobile Magazine


Tess Vigeland: The automakers themselves aren't the only ones feeling the pressure today. The Big Three are fed by all kinds of other businesses, not least of which is auto-parts suppliers. And then there's the effect of GM and Chrysler's woes on other, healthier car companies. Jean Jennings is editor-in-chief of Automobile Magazine. Thanks for joining us.


Vigeland: Let's talk about some of these knock-off effects from the announcements today regarding GM and Chrysler. Let's start with the third of the big three, Ford. What have they been doing these last several months, you know, while the other two took bail-out money and just kinda got sicker and sicker.

JENNINGS: Well, Ford was already looking pretty good. They had been getting their ducks in a row for quite some time before this really went down. They, for instance, sold off virtually every brand, other than Volvo, that was not a Ford brand. What they wanted to do was just focus on the Oval. The second thing they did was actually mortgage everything including the Blue Oval, to amass a large amount of cash seeing that money was going to get tight pretty darn soon. So they not only have money, they have money at a very good rate.

Vigeland: Then taking a look at what may be happening in the future to GM and Chrysler. What would a bankrupty of either of those mean for Ford?

JENNINGS: It would mean that no one would be able to build cars in the United States for at least a year. That means no Japanese, none of the Europeans that are building, and not Ford because of their great dependence on a supplier industry that would just crash and burn. It takes the loss of one part to shut the whole thing down.

Vigeland: So it's all about the auto parts at this point

JENNINGS: It's all about the parts. It's all about the parts.

Vigeland: Well, Jean, let me ask you to kinda look into your crystal ball and tell us maybe what this market is going to look like in a year. Will there be a Detroit Big Three?

JENNINGS: We know that there will be Ford because as I said they've put their ducks in a row, and it's meant a lot to the average consumer out there. My 79-year-old aunt in New Orleans knows that Ford didn't take the money, so they must be doing OK, right? So they have product, they are poised for when things turn around. The Fiat deal...

Vigeland: With Chrysler?

JENNINGS: Without Fiat, Chrysler has nothing. With Fiats, they have Fiats. So I would say things will be a little dark and sketchy at Chrysler. If there is a Fiat deal. Without a Fiat deal, it's finished.

Vigeland: And GM?

JENNINGS: General Motors is such a huge company. I would expect that now they will do the hard job of eliminating as many brands as possible. Dealers will be going out of business, and there will be a lot of pain and suffering.

Vigeland: Jean Jennings is the editor-in-chief of Automobile Magazine. Thanks so much for steering us through today's news.

JENNINGS: Thank you.

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Automakers have run into the same problem computer makers just dealt with:

For years, they've made products good enough to fulfill the needs of customers, so why buy a full price new product straight off the assembly line, when a barely used but cheaper product can do everything you need for less?

Years ago, Detriot ran into this problem, which "intended obsolescence" had earlier fixed. There were too many vehicles sitting on dealer's lots. Thus, the advertising campaign selling consumers on the idea that leasing a car made so much sense.

Can you imagine, ever, the news media telling you a house makes no sense, you sshould really just rent instead, and have nothing at the end of the deal?

Then what happened to all these cars at the end of the lease? Dealers were stuck with used cars, AND new ones coming in the door. Thus a new advertising campaign, the joy of a "pre-owned car, good as a new one!"

And we are surprised this led us all here?

Good story but you're missing an important point. Are you aware that other Auto Manufacturers in the U.S. such as Honda are very concerned about the effect of a GM or other "Big 3" bankruptcy on their supply chain?

Yes, the ripple effects could idle the manufacturing plants of Honda, Toyota, Mercedes and others.

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