Tag: GM

Car-ownership is a symbol of economic progress and is very high on a consumers wish list of products. The face of the Indian automobile market has changed tremendously since the turn of the millennium and will change even further since Nano. Indian automobile industry has metamorphosed into a great industry since the first car ran on the streets of Bombay in 1898. Today, automobile sector in India is one of the key sectors of the economy in terms of the employment. Directly and indirectly it employs more than 10 million people and if we add the number of people employed in the auto-component and auto ancillary industry then the number goes even higher.

The automobile industry lists heavy vehicles like the trucks, buses, tempos, tractors, private or commercial passenger cars and two-wheelers. The automobile sector in India underwent a metamorphosis as a result of the liberalization policies by the government since 1991 which included relaxation of the foreign exchange and equity regulations, reduction of tariffs on imports, and refining the banking policies. After the automobile industry opened to direct investment from foreign countries in 1996, global automobile industry majors moved in. Automobile industry in India also received a boost from stringent government auto emission regulations over the past few years. This ensured that vehicles produced in India conformed to the standards of the developed world.

Indian automobile industry has also become an out sourcing hub for automobile companies worldwide, as indicated by the zooming automobile exports from the country. Today, GM, Ford, Hyundai, Honda, Mitsubishi and Toyota have set up their manufacturing units in India. Due to rapid economic growth and higher disposable income it is believed that the success story of the Indian automobile industry is just beginning. Factors influencing the growth of the auto industry include sales incentives, introduction of new models as well as variants and easy availability of low cost finance with comfortable repayment options continued to increase demand and sales of automobiles.

The major characteristics of Indian automobile sector are:

Indian automobile is the second largest two-wheeler market in the world
Indian automobile fourth is the largest commercial vehicle market in the world
Indian automobile is the 11th largest passenger car market in the world
The Indian automobile will be the world’s third largest automobile market by 2030

Trend of Growth of the automobile industry in India:

Growth of exports of 32.8 % in commercial vehicles as against passenger cars
Output of commercial vehicles has grown 2.8 times compared to the 2.2 times increase in passenger cars
Two-wheeler output continues to dominate the figures of the sector
In 2003-04, for every passenger car turned out, there were 7 two-wheelers produced
In the two wheeler segment, there is a greater preference for motorcycles followed by scooters
Mopeds have registered low or negative growth
Export growth rates have been high both for motorcycles and scooters

Pro 1: Eco Cars
If the bailout money works the way it is supposed to and pulls the big three out of the hole, good things could potentially come of it. One proposal is that after being saved the automakers could be pushed to manufacture and sell cars that are both good for the environment and economy.

Con 1: Taxpayer Cash
Perhaps the most obvious con, it is no secret that we will all be helping bail these companies out. Although it is still unknown where the money may or may not come from, taxpayer cash will be included for sure. Bloggers, business leaders, and experts are expressing their frustration about this all over the Internet.

Pro 2: Recession Woes
While most are already feeling the effects of a recession on their wallets and gas tanks, it could be a lot worse if something else big happens. Some experts feel not bailing out the big three could result in a much deeper and more severe recession then we are already in. With thousands of jobs connected to the auto companies and stocks across the board, their downfall could have a large effect on our economy.

Con 2: Bankruptcy
One of the only other options for GM and the rest of the big three is to file bankruptcy under chapter 11. It is true that we have already assisted these companies financially this year and it helped them for few months. For this reason, some economists feel another bailout would just be like bailing out a sinking ship that is going to sink no matter what we do. Bankruptcy however, could be their only salvation, and many experts claim that it could be their best option. Michael Levine of the Wall Street Journal claims, the cost of terminating dealers is only a fraction of what it would cost to rebuild GM to become a company sized and marketed appropriately for its market share. Contracts would have to be bought out. The company would have to shed many of its fixed obligations. Some obligations will be impossible to cut by voluntary agreement. GM will run out of cash and out of time.

Pro 3: Prior Success
As history tends to repeat itself, I think it important to consider the Chrysler bailout of 1979. In the mid 70’s while our country was going through a gas crisis, Chrysler refused to stop making their biggest most gas guzzling luxury cars. This mistake led them to requesting a bailout in late 79. However, to the surprise of the watching country, Chrysler came out with the “K-car” that sold like hot cakes and pulled the company out of a financial crisis. Chrysler then paid off their debt to the government 7 years early, and the government made over $660 million in profit from the bailout when all was said and done. Many people claim that if given another bailout, the auto companies could pull themselves out from near bankruptcy, and the federal government could generate revenue as well.

Con 3: Private Jet-setting
Unfortunately, when the CEO’s of the big three traveled to Washington D.C. to request billions from taxpayers early this week, all three CEO’s took private jets with round trip travel costs totaling of over $40,000 per CEO. This ostentatious show of wealth was considered highly disrespectful to the taxpayers about to consider bailing them out and created tons of bad publicity for the potential bailout. If companies are going to get taxpayers money, then we need to know that they are being frugal with it.