Saturday, December 13, 2008

It is the turn of auto industry to fall!

Falling in line with the banks after the sub-prime fiasco and the insurance giant AIG, is the auto major General Motors, which is struggling and planning to file a bankruptcy. Competing with the General Motors in the financial bungling is the Chrysler and Ford Motor, although the cash position of the Ford is far better than the GM.
When the economy is unrestrained, it is a common practice to allow the markets to determine the fate of the private companies but the present situation is entirely different and needs special attention. Ms. Dana Perino, the US President’s spokesperson was of the opinion that there were plans to use other options including the use of Troubled Assets Relief Program (TARP). The US president George W. Bush may allow the US treasury to channelize the money to Detroit from the $700 billion earmarked for the bailout, announced earlier for lifting the ailing financial institutions.
Chrysler is in need of $7 billion from government as loans while General Motors requires a whopping $18 as loan to survive the worst ever recession in the auto industry since 26 years. The failure of the US bailout of the auto majors is seen as a backward step for the distressed US economy and the lay offs from auto industry would add to the already burgeoning unemployment rate, which is increasing alarmingly as the day progresses. The new president elect Mr. Barack Obama will have a daunting task before him when he assumes office.
Slump in auto industry and its effect on crude
The collapse of the $14 billion bailout package to rescue the failing US auto industry triggered the fall of crude prices to approximately $45 in the e Trading on Friday; this happened at a time when the OPEC countries are pressing for a cut in the production of crude to shore up oil prices.