Merging GM and Chrsyler: A Symptom Of Diminished American Capacity

2 weeks ago, I pointed out that the next shock to our economic system in the US would come – not from financial services or capital sectors – but from the automotive manufacturing industry. Here’s why:

GM, Ford and Chrysler (The Big Three) are linked to the substantive portion of GDP that we call our standard of living. No other single industry is as large in America nor does anyone provide as much employment and retail as the automotive.

Over the past 3 decades, that foundation of America’s exchange economy has been chipped away by foreign competition, from cheaper labor, subsidies and poor product development.

Early this year, Toyota overtook GM as the number one seller of cars in the world. A subtle distinction but a telling one. As consumers look for cheaper, smaller, more efficient cars, the US manufacturers seemed to be looking in the opposite direction. Now they are beginning to hit the limits of that strategy.

Using debt vehicles to both fund expansion, compensate for losses and encourage sales, they were hard struck by recent downturns. So much so that GM and Chrysler are considering a merger, particularly after GM’s stock hit a 50 year low.

Today comes news that Ford is hitting similar dire straights. Its largest investor, Kirk Kirkorian, is forced to reduce his holdings after a 60% drop in value.

The amount of jobs these companies represent – I’m sure I don’t have to tell you – is quite large. Losses would be felt and have quite an impact on consumer spending.