BIG 3

BIG 3: The Road Ahead?

US Auto giants - Ford, General Motors and Daimler Chrysler have got a lifeline from the US Govt in the form of $ 17.5 billion bailout package as financial aid.

But a big question lies ahead. Will this package be sufficient to save the auto giants from collapsing or not? Due to global financial turmoil, particularly in US, the spending power of people has considerably decreased. The GDP has gone down to the lowest levels in about 27 years. This will obviously take sufficient time to recover, and it would be testing times for the resilience of the economy.

With such a distraught situation in the country, will this meager financial aid be sufficient to actually bail out the auto giants or a lot more should have been provided to them? The auto sector, as is perceived by the entire world, is dominated by Japanese, German and American companies.

US companies mostly face a stiff competition from the Japanese Car makers like Honda Siel, Toyota, Mitsubishi, Suzuki and Hyundai. In a gloomy situation like this, these auto companies would definitely strive to score over the Big 3. In spite of the fact that Japan was the first Asian country to officially declare recession, the condition of its auto companies is much better than those over its American rivals. The auto sales have been inevitably down, but they are much farther from a possible bankruptcy.

The reason for this is: Due to the advantage of being in Asia, where the tremors of recession have been much less intense, their auto companies are now well placed in Countries like India, China and Middle East. The spending power of people in these countries has not suffered that much. Toyota has already overtaken General Motors for the world’s biggest automaker position. Daimler Chrysler is also trailing behind its rivals.

GM and Chrysler should start searching for solutions for escaping the probable bankruptcy in future. Some of the solutions may be:

Firstly, they should search for potential markets for selling their units. India is one of such places. GM in India occupies about 3.76% market share of automobile sector. Its automobiles named Tavera (SUV), Optra (Sedan) and Spark (Mini) are now well placed in Indian markets and carry huge profit prospects in the future also. GM should specifically look out to promote these vehicles in India because these can probably become their cash-cows in future.

The demand for these vehicles in Indian market has been increasing tremendously and promises the same in future also. Chrysler, on the other hand is constantly losing out its market share in India to BMW, Audi and Porsche. Things have to be controlled from the Chrysler’s point of view otherwise; it would not be too late by then. This can be done by utilizing the funds obtained from TARP to advertise in Indian markets.

Even in these downturn conditions, India still has increasing prospects in luxury car segment. Audi, BMW have infiltrated even to small Indian cities and have succeeded there. Mercedes Benz is still the name of the car many Indians crave to drive. So it is not too late for Mercedes to reconquer the market.

Secondly, these Companies should completely shut down the production in countries where the recovery from recession is not near. The continuity of production there will lead to piling up of unnecessary economic burden on them. Even the production should be halted in US also where the possible recovery is not very clear soon. Such moves would help the automakers to save huge money and would aid in their recovery.

Thirdly, cost cutting is would be another wise option to stay in the competition. Even when there were news of bankruptcy filing by GM and Ford, the company officials flew to Washington in corporate jets, maintaining their flamboyance and luxuries. It should be well understood that in these troubled times when the financial resources get scarce, the best possible way out is to sacrifice your luxuries and try to contribute the maximum to the company’s savior.

Lastly, something has also to be learnt from the way Chrysler has acted upon; by selling a part of its stake to Fiat Motors. It would not be a bad option to practice by GM also. Selling a part of its stake would help generate funds, which can be employed to relieve off some of its debts.

By employing some of these measures, the economic condition of BIG 3 can improvise considerably and in a year or so they would be back on track to take on their Japanese rivals.