TOO big to fail: it is a business tenet that seems particularly redundant in the motor industry where one-time goliaths are on the brink of extinction. In a year that marks the centenary of General Motors and the Ford Model T, the "Big Three" US auto giants - GM, Ford and Chrysler - are under intense financial pressure due to plummeting sales, limited credit facilities and model ranges out of favour with changing consumer tastes.
The promise of a $14 billion emergency US government bridging loan seems paltry when compared with the cash haemorrhaging from GM. It has lost almost $73 billion since 2004 and claims it will burn through its remaining cash reserves in the next three weeks without a cash infusion. While Ford seems better positioned to survive, bankruptcy remains a realistic possibility for at least one of the Detroit car firms.
Blame for this mess rests on many shoulders. Clearly there have been management failings. While foreign competitors developed more efficient vehicles and production lines, US firms offered outdated, big-engined goliaths and then discounted heavily when demand started to wane. The money saved on product development covered up spending excesses elsewhere. Meanwhile US auto unions were slow to concede to cuts in benefit costs that added thousands of dollars to every new vehicle coming off Detroit's production lines, while foreign competitors opened modern non-unionised plants, mainly in southern states. And Asian rivals increased their market share on foot of reputations for better quality, reliability and new technologies.
If GM and Chrysler secure the bailout, which faces strong opposition in the Senate, their futures still remain uncertain. Sales are falling dramatically, even in developing markets like Brazil and India. In the mediumterm, viable alternatives to fossil fuels need to be found. Lately electric power seems the favoured power source but several months ago short-term bets were on biofuels, while hydrogen fuel cells were everyone's favourite only three years ago. The clear winner in this energy race has yet to emerge and car firms are loath to back any one technology too far for fear of being caught out. Nevertheless some industry leadership is required.
The US auto giants, long-time icons of the motor industry, are in desperate need of an overhaul. Foreign competition is only going to get more intense as the Chinese and Indians enter the fray. A massive restructuring of the motor industry is called for and any bailout would seem to delay the inevitable.