LONDON, Nov 19 - The plant that assembles Chrysler’s Jeep Wrangler near Toledo, Ohio, sprawls across four buildings, but Chrysler occupies only one of them. The others house three of the troubled carmaker’s suppliers.
South Korea’s Hyundai Mobis builds the Wrangler’s chassis, while Kuka, a German maker of robots and welding machines, puts together the body. The facility’s paint shop is operated by Magna International of Canada, with Chrysler responsible only for the vehicle’s final assembly.
The plant, opened in 2005, illustrates the interdependence of Detroit’s troubled carmakers and their myriad suppliers in the US and overseas.
Relationships like these lie at the heart of the intense lobbying effort by Chrysler and its two bigger Detroit-based rivals – General Motors and Ford – to persuade US lawmakers to approve a $25bn rescue package.
Congress began hearings on Tuesday on the plan, aimed at averting the collapse of an industry that accounts for about 4 per cent of gross domestic product but is quickly running out of cash. Were either GM or Ford to go bankrupt, it would mark the biggest business failure in US history.
The Detroit carmakers operate 105 US assembly and component plants, with close to 240,000 employees. They provide healthcare benefits for 2m Americans and pensions for almost three-quarters of a million people.
The dealers who sell General Motors, Ford and Chrysler vehicles are growing increasingly vocal in urging Congress to support a $25bn emergency funding package for the carmakers. Their voice, moreover, is one that counts.
Car dealers are among the most politically powerful entrepreneurs in cities and towns across the US. Many dealerships are long-established family businesses that have deep local roots, with the connections and
financial clout to ensure that politicians listen when they speak.
“This is not an issue about Detroit or three companies,” says Jim Arrigo, who owns a Chrysler, Dodge and Jeep dealership in West Palm Beach, Florida and is one of 33 Chrysler dealers in Washington this week to lobby politicians on Capitol Hill. “It is about millions of people, mechanics, sales representatives and accountants working across this country whose livelihood intersects the automobile industry.”
The average dealership employs 53 people, according to the National Automobile Dealers Association (Nada). But the dealers’ mission is complicated by the fact that they are widely seen as part of Detroit’s
problem rather than the solution. Most Detroit-affiliated dealers were set up in the days when the three dominated the US market. But GM, Ford and Chrysler sold just 47 per cent of the light vehicles bought in October.
GM alone has 6,500 dealers, more than five times as many as Toyota. According to Nada, the average Toyota dealer sells 1,821 cars a year, compared with 586 at an outlet for GM’s Chevrolet marque and 378 by one selling Chrysler’s Dodge.
Addressing that imbalance is not easy. Under state franchise laws – many tailored to the needs of car dealers – carmakers cannot alter agreements without dealers’ consent. In practice, this means compensation. GM forked out about $1bn to Oldsmobile dealers seven years ago when it discontinued the brand.
The carmakers’ latest strategy is to make a full suite of vehicle types available only to those dealers that rationalise. GM has set up three main sales “channels” for its eight brands. Only Chevrolet and Saturn are standalone. GMC (trucks), Pontiac (small cars) and Buick (larger sedans) are grouped in one channel, as are Cadillac, Hummer and Saab. Chrysler is encouraging Chrysler, Jeep and Dodge outlets to amalgamate so that they offer all three under one roof.
Forty per cent of Chrysler dealers still represent just one or two brands. But the plunge in sales could speed up the process. About 700 dealerships, three-quarters of them selling Detroit brands, are expected to go out of business this year. Few doubt that the number will rise in 2009 as more come to the conclusion that, even in a depressed real estate market, the commercial property they occupy is worth more than their businesses.
Proponents of the bail-out claim that the damage would spread much further. Carmaking, they argue, has one of the largest “multiplier” effects of any industry: for every job, at least seven more people are employed indirectly.
Manufacturers, parts suppliers and dealers say the impact of a collapse on the real economy would dwarf that of this year’s bank failures. Nearly all the jobs lost would be blue-collar, with the pain felt largely in Michigan, Ohio and Indiana. Michigan already has unemployment of almost 9 per cent, the highest of any state.
Some draw a parallel with Lehman Brothers, where government’s failure to intervene is now seen as having hastened the collapse of AIG and exacerbated the financial crisis. Nancy Pelosi, Democratic House leader, has said that the impact of the failure of a Detroit carmaker would be “devastating”.
Bob McKenna, president of the Motor & Equipment Manufacturers Association, which represents suppliers, describes such an outcome as “catastrophic”.
But many lawmakers, Republicans in particular, are hostile to a bail-out that they say would reward Detroit for its failure over many years to build competitive businesses. It could also set a dangerous precedent as recession sends other US industries into the skids, then on to Washington in search of handouts. Rescue funds, if they come at all, are likely to be tied to strict conditions requiring changes to management, union contracts and business models.
Less disputed is the risk that, without aid or an extraordinary uptick in America’s depressed car market, one or more Detroit carmaker may not survive through next year. Ratings agencies, equity analysts and credit default swap markets all increasingly point to the likelihood of a failure among GM, Ford and Chrysler.
Standard & Poor’s last week lowered the credit ratings of two big suppliers and placed 13 others on review. Even formerly blue-chip companies such as Magna, BorgWarner and Johnson Controls, were on the list.
According to CSM Worldwide, the automotive consultancy, three-quarters of suppliers of 68 of the key components and modules that go into cars derive 20 per cent or more of their business from the Detroit companies.
About 37 per cent of suppliers generate more than half their business from GM, Ford or Chrysler. Many are already unprofitable and the loss of a single big customer – a Ford or a GM – could push them over the edge, disrupting the supply chain of other customers.
Advocates of a bail-out say, therefore, that the failure of one large Detroit company could cause the other two to collapse. “Everything is so intimately connected that if one of these guys goes down, it would probably take the entire industry down,” says David Cole of the University of Michigan’s Centre for Automotive Research.
Other large US companies – notably airlines – have filed for Chapter 11 protection and continued doing business for years. But carmakers and industry analysts say that a bankruptcy filing for an automaker would cause a collapse of sales as consumers baulked at buying a car whose warranty might not be honoured or for which they might have trouble getting parts.
The carmakers also reject the notion that they are undeserving of a bail-out. GM and Ford are now producing well-reviewed models – the former’s Saturn Outlook sports-utility vehicle is one – that match or beat Japanese rivals’ offerings in consumer rankings.
After years of struggling with high healthcare and wage costs, Detroit last year clinched deals with the United Auto Workers’ union to cut its healthcare obligations by billions of dollars and pay new hires more competitive wages.
The healthcare savings were due to show up on carmakers’ bottom lines from 2010 – but it is no longer clear whether they will be around to reap them. GM has said its cash reserves may fall below the minimum $11bn-$14bn it needs to keep running by early 2009, while analysts think the finances of privately owned Chrysler, which does not report earnings, are similar if not worse. Ford has more money but burnt through an average $2.6bn a month in June to September.
The discussion over whether to bail out America’s carmakers is clouded by the fact that most who know them best, including outside consultants, are based in Michigan and have a vested interest in their survival.
Few willspeak critically on the record, but some privately say the true picture may be more nuanced than Detroit paints. One thinks the carmakers may be “crying wolf” in the hope of raising the amount of government largesse they get.
“If they really wanted to sell assets and raise cash they could,” he says, pointing to lucrative franchises such as Ford of Europe and GM’s joint ventures in China. Indeed, GM this week sold its remaining shares in Suzuki, and Ford on Tuesday sold 20 per cent of its stake in rival Japanese carmaker Mazda.
Past industry experience also suggests that the failure of the three carmakers, while widely felt, might in fact come at a cost lower than the sum of their lost parts. At least some of the Detroit companies’ operations would probably survive and employ workers under new owners.
Daewoo Motors failed in 2001 at a heavy short-term cost to employment and its local and overseas plants. Ten years later, five of the former carmaker’s plants in Korea have been busy turning out Chevrolets and other cars for none other than GM under its GM DAT joint venture with Daewoo’s creditors and others.
When US suppliers such as Delphi or Collins & Aikman filed for bankruptcy in 2005, their European units carried on doing business after being sold or ring-fenced from their parents. The Detroit companies would have a harder time selling their unionised Midwestern car plants but some of their suppliers would probably survive, picking up business from Japanese carmakers and emerging leaner from the process.
Indeed, there are signs that Detroit’s overseas arms are preparing themselves for all eventualities, including failure of their owners. Opel, GM’s German subsidiary, is in talks with federal and state governments about lining up €1bn in guarantees to keep it going in case its owner’s troubles deepen.
Nor is the past record on state-led rescues of “national champion” carmakers encouraging. Chrysler secured $1.5bn in loan guarantees in 1979 – a bail-out seen today as having addressed the symptoms of Chrysler’s problems rather than their root cause.
The UK government poured millions of pounds into trying to save MG Rover, only to see it fail in 2005 at an estimated cost to taxpayers and business of £870m. China’s Shanghai Automotive owns some remnants of the business.
Yet politics rather than economics is likely to prevail in Washington, if not this week then after Barack Obama takes office in January. Organised labour is a key Democratic constituency and jobs in several “swing” states that voted Democratic in the presidential election are on the line.
“We are determined to pass legislation that will save the jobs of millions of workers whose livelihoods are on the line,” Senate majority leader Harry Reid said last week. “They deserve no less.”
GM and Ford, as publicly traded companies, may prove more politically palatable candidates for aid than Chrysler, owned by Cerberus, the private equity firm. Industry insiders say the company is the only one in Detroit that could fail without taking its two rivals down with it. The impact on suppliers would also be comparatively muted.
But the reckoning will be costly to Detroit in any scenario. Whatever happens, tens of thousands will lose their jobs in the months ahead. According to S&P, even with financial aid, “US automakers are unlikely to avoid further sweeping changes to their product lines, market focus, or possibly their status as independent entities.”
Rod Lache, automotive analyst at Deutsche Bank, says that GM’s predicament “has the potential to set in motion a sequence of events that would be bankruptcy-like”. The company’s market share could continue to fall and finance companies are likely to tighten their terms even further.
“I don’t think any enterprise the size of Ford or GM has ever been closer to filing for Chapter 11 before, so it’s uncharted territory on the economic impact it would have,” says one industry consultant. - Financial Times
The government developed ambitious biofuel policies in 2005 when it appeared that the country’s key agricultural product, palm oil, could be profitably transformed into biodiesel. The policies aimed to expand the market for palm oil, improve energy security and create a new export industry. 
A sizeable portion of this production occurred in OECD countries, supported by government incentives that are estimated to have totalled over US$15 billion in 2007 alone. The result was a major surge in demand for agricultural commodities over the past two years, causing dramatic rises in prices, including for palm oil. 
Assuming no further closures or cancellations, total production capacity is expected to reach approximately 2.7 million tonnes in 2009.
By moving fuel prices closer towards the international market price, the government generated subsidy savings in the transport fuel and electricity sectors of RM14 billion (US$4.2 billion) in 2008 alone.
Despite biodiesel being uneconomic, many countries have supported the development of a domestic biodiesel industry for social and environmental reasons. 
The expansion of the palm oil industry in Malaysia has been associated with deforestation, release of carbon from vegetation and soil, forest fires, soil erosion, water pollution and biodiversity loss. 
In light of the limited economic, social and environmental benefits of promoting biodiesel in Malaysia, this report recommends that the government refrain from intervening in the market for biofuels, through such measures as offering direct price support or imposing mandatory blending. 
Obama was six when he came to live in Indonesia in 1967 and lived there for five years with his mother, Ann Dunham, and his Indonesian stepfather, Lolo Soetoro.