The Overprotected U.S. Auto-Industry

Despite the U.S. Treasury’s effort in pumping so much money into the auto-industry to prevent them from failing, the talk between the U.S. Treasury and the lenders broke down last Thursday, which finally led Chrysler to file chapter 11.

Prior to Chrysler’s bankruptcy, besides constantly injecting funds to the auto-companies by the U.S. government, the government used an overprotective measure, by kept forcing the lenders to convert their debt into less amount of equity, meaning forcing the lenders to make a huge loss on their investments. This abrupt change in rules is extremely unfair to the lenders. At the same time, this is not a suitable solution for the problem. The problem is how to make the U.S. auto manufacturer more competitive.

When comparing to the Japanese auto manufacturer such as Honda, Toyota and Nissan, the U.S. auto-companies can feel that the Japanese auto-companies are taking up more market shares from the U.S.’s in the auto-market.

The labor union also contributed to the collapse of the auto manufacturer because the healthcare and other workers’ benefits are enormous. These excessive expenditures drained a large amount of cash out of the auto-companies. If the labor union wants to become more competitive and secure their jobs, instead of having prolonged strikes and delaying production, they should cooperate will the auto-companies’ restructure proposal by reducing those benefits.

Personally, I don’t think the bankruptcy of Chrysler is a bad think but is the opposite. Even though this event reflected the auto-industry is still in big liquidity crunch, Chrysler’s bankruptcy and subsequent operation by Fiat will make the auto industry more competitive in the future. Because now, with Ford and GM remaining, they really need to figure out how to be more competitive globally in order to survive in the auto-industry.