[This is part of a 2-post-series about the US Automobile industry and the current apparently terminal decline it is going through. Kindly go through the first part of the post here. This second part now examines the present situation more deeply and tries to understand the steps taken by US policymakers which would shape the future of the industry in the 2nd decade of the 21st century.]

To quote William Holstein, author of this book on General Motors, US economy and GM are inextricably linked. Even today, GM is the country’s largest private buyer of IT, the world’s largest buyer of steel, the holder of pensions for 780,000 Americans,and GM accounts for a full 1 percent of US GDP. A dollar spent on GM has profoundly different consequences from a dollar spent on Toyota for the US. Apart from this look at General Motors’ international profile. It is the largest auto manufacturer in China, has made huge inroads into Europe, and has presence across more than 100 countries in all 6 (habitable) continents of the world. Clearly, GM is a behemoth, and there is no doubt about it.

Now one cause that a lot of Auto-experts are pointing to for the Decline is the top management domination of the finance professional – also called as the ‘Finance guys’. The reason why engineers and auto-professionals were not given top notch positions in this industry was that they may have their hidden agendas. Also, the fin guys had big MBAs from Ivy league B-schools with them. Now, over a period of 40 years, this may have hurt the industry in a sense that the industry lost its agility with respect to giving the customer what it wants in the nick of time. This has led to sections of the industry demanding Auto professionals at the helm of affairs in these firms. While the logic might make sense, is a change at the top going to solve everything? Certainly not!

Another key determinant for arresting the decline would be how these firms emerge out of bankruptcy. While its clear that both Chrysler and GM would emerge much smaller and leaner, there are two major problems – (a) The reaction of the powerful union (b) The internal financial restructuring. Also, while GM is pretty huge all over the world, Chrysler presents a more complicated problem. Unlike GM, Chrysler operates only in USA and Canada. It may so happen that Chrysler may not emerge from bankruptcy at all. It may just go under. And thats certainly not good news.  And thats where hopefully the agreement with Fiat, its hoped will save Chrysler. Its an irony that this firm which was once headed very successfully by the legendary Lee Iacocca has reached such a stage.

To quote Mr. Obama’s views about Chrysler:

The situation at Chrysler is more challenging (than GM). It is with deep reluctance but also a clear-eyed recognition of the facts that we have determined, after a careful review, that Chrysler needs a partner to remain viable. Recently, Chrysler reached out and found what could be a potential partner — the
international car company Fiat, where the current management team has executed an impressive turnaround. Fiat is prepared to transfer its cutting-edge technology to Chrysler and, after working closely with my team, has committed to building new fuel-efficient cars and engines here in America.

Thirdly, will these firms be able to tackle the financial turbulence that is imminent in the near future? We saw how giants like ML, Bear Sterns became takeover targets during the last quarter  2008. The US fed cannot allow or afford these firms to fail and hence the coming few months promise to be the most challenging.

Finally and perhaps most importantly, How will these firms attract new customers where will they expand? At what pace will they expand ? Whether they will expand in existing markets or new markets?

A lot of questions still remain unanswered. But answers to these questions form key components of the jigsaw that the industry needs to crack to ensure its survival. Huge challenges lay ahead for this sector and lets hope that adversity brings out the best from the Americans, something that Americans are known for.

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