Huge Losses, Closures and Job Cuts Rip Soul Out of City

Detroit. Motor city. Once it was the powerhouse of the US economy and the soul of its music scene. From their giant headquarters in and around the city General Motors, Ford and Chrysler bestrode the global automotive industry. From a tiny suburban house Berry Gordy conjured the magic that was Motown.

No longer. President-elect Barack Obama has been warned that without a $50bn (£20.3bn) bail-out of the big three car makers 3 million jobs could be lost. He is already under pressure to dip into the $700bn troubled asset relief program - set up to bail out banks and insurers - to bolster Detroit's ailing giants. No doubting, then, who is planning to play gooseberry in the traditional 100-day honeymoon enjoyed by new presidents.

The immediate trigger for the crisis is that US car sales have fallen off a cliff. The slump is the worst in two decades. Consumer confidence has crashed alongside consumer credit. The big three are racking up billions of dollars in losses. General Motors has warned it could run out of money next year. It is, perhaps, a measure of how desperate the situation has become that GM and Chrysler have looked at, but discounted, a merger.

The problems caused by the scale of the sales decline is being compounded by the sector taking the biggest hit - the gas guzzling but highly lucrative SUVs. In the face (until recently) of rising petrol prices and environmental concerns US buyers are turning green or mean or both.

The malaise, however, has deeper-seated causes. While GM and Ford have been in the vanguard of globalisation, car makers from Japan and Europe have carved out a growing share of the US market, with critics arguing that the US manufacturers have been slow to respond to the challenge on their home turf. Twenty years ago two-thirds of the cars made in the US were built by Detroit's big three. This year there are forecasts that foreign manufacturers may overtake Detroit's automotive oligarchy.

The big US car makers also have huge employment costs, including healthcare for thousands of workers, past and present, as well as other benefits.

As the losses have soared the share prices of Ford and GM (Chrysler is privately owned) have collapsed. In 2000 the combined stock market value of Ford and GM was more than $130bn. Now it is nearer $10bn.

In response, the three companies have announced plans to slash costs and production. They have announced plans to close 35 plants, mostly around Detroit, with the total loss of 100,000 jobs. GM and Ford are looking to expand operations in lower-cost places, such as Mexico, China and Africa.

The fallout from Detroit could hit closer to home. GM has a car plant at Ellesmere Port and a van plant in Luton. Many of Ford's engines are produced in the UK, at Dagenham and Bridgend.

In the 1970s Gordy moved the home of Motown Records to California. The big three car makers are hanging on, hoping Washington will provide enough finance to see them through to better times.

Perhaps the big three should serenade the White House with one of Motown's early hits, Barrett Strong's Money (That's What I Want). Though in truth it might be more appropriate to dig out an old tune by the Miracles.