An Industry on Life-Support

Who would be a car-maker these days? The days of excessive glamour, speed and size are over and numerous global giants are limping along on life-support.

The Obama Administration may have forced GM’s chairman and chief executive, Rick Wagoner, late last month, but there are still rumours that GM might have to file for bankrupty.

Whilst it still seems unlikely that the US will allow the GM goliath to fail, the other US giant Chrysler has less than a month to form a partnership with the Italian automaker Fiat otherwise it might well go to the wall. The administration is giving G.M. 60 days to present a cost-cutting plan and will provide taxpayer assistance to keep it afloat during that time.  Of the two, experts believe the US Administation will allow Chrysler to go, but not GM.

Even still GM is speeding up preparations for a possible bankruptcy filing, by forming a new company from its best assets.  “The best outcome is for an arrangement outside of bankruptcy, but that will be very difficult,” said Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan. “A bankruptcy of a company the size and complexity of GM is not simple, and it’s probably going to get ugly.”

Meanwhile across the pond in Britain, the government is facing renewed pleas to bail out Britain’s ailing motor industry as figures showed sales of new cars had dropped by almost a third year on year.

The car lobby is hoping this month’s budget will include a scrappage scheme, under which car owners are given a financial incentive of about £2,000 to swap their old vehicle for a new greener model. This is nothing new – a  scrappage scheme in Germany – which offers car owners €2,500 for getting rid of any vehicle over nine years old – has attracted more than half a million buyers, with sales soaring 40% there in March.

Any scheme in the UK would cost over £500 – money surely better invested in public transport. For example, Peter Lipman, policy director at Sustrans, the sustainable transport charity, said it would be “a really, really bad idea, wherever the money is coming from. There are so many better ways of spending government money if you are trying to deal with both the recession and climate change.”

Meanwhile a blueprint of how not to bail out your industry has been provided by Russia. The government has just bailed out the company that makes the Lada.

The plant receiving the money, known as Avtovaz for short, is one of the least efficient automobile factories anywhere in the world.  Yet the government is giving the plant billions of dollars in aid, no strings attached. Ther are no firings and no demands to turn out better-quality cars, much less fuel-efficient ones or hybrids.

The hugely inefficient and polluting plant is described by the New York Times as a “monument to Soviet gigantism in industrial design, is a panoramic sprawl of pipes and smokestacks on a bank of the Volga River, 460 miles southeast of Moscow.”

Not only is the car an environmental dinosaur but it is notoriously unreliable and, as the BBC pointed out this week, the butt of many a Russian joke:
Question: How do you double the value of a Lada?
Answer: Fill it up with petrol
Question: Why do Ladas have heated rear windows?
Answer: To keep your hands warm when you’re pushing it home.

Seriously though, once again as car manufactures ask for money this is a real opportunity to kick-start the green revolution with cutting edge technology. The old economic order of inefficient gas-guzzling cars has gone. The new one must be radically different. And governments have a rile to play to ensure that happens, especially if they are using our money to give these dinosaurs another chance.