Posted by
BrianW on Thursday, December 04, 2008 4:39:54 PM
We've heard the threats. Er, warnings, rather, that if any of the "Big 3" automakers were allowed to fail our economy would be instantly thrust into a new "great" depression. Do you believe that? Have you given it any significant thought? The potential loss of millions of jobs is certainly sobering. However, the demise of any of these “big3″
automakers would not be the CAUSE of anything. It would be the RESULT
of something. It would not “lead to” a depression, but it could,
possibly, be the result of one.
However, it could also be the result of
one or more of several other factors. The fact is, fewer people are buying new cars
right now - some say 1/3 fewer than a year ago. Certain things must
take place for a company to survive such a drop in sales, and any
company that continues to maintain its higher-level costs during a
period of significantly reduced revenues WILL FAIL. Costs must be
maintained at levels below revenues in order to survive. Borrowing money to float through the revenue reduction period will only work if the revenues return to higher levels or if costs are cut below revenue levels, otherwise where will the money come from to repay the loans?
Now, the real question is… will the UAW allow GM, Ford, and Chrysler
to reduce their costs enough to survive the period of reduced demand?
You know, like Toyota, Honda, Nissan, et al. have.