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Friday, May 1, 2009

More trouble for the Auto Sector

A sector which, in 2001, employed, either directly or indirectly, over 7 million North Americans, is facing further trouble. Since December 2007, the auto sector has lost 27% of its jobs. That's almost 2 million people.

With Chrysler going into bankruptcy protection, the number of layoffs are going to climb. Everyone is hoping the merger with FIAT will save the day, but the reality is, the next several months are going to be tough. There is certainly good motivation for both automakers to work together: FIAT is a small, niche player and access to a greater variety of brands and a huge North American network will certainly be a boost, while Chrysler's motivation is more obvious - survival.

Still, deals can fall apart. Implementation may be unsuccessful. Supplier disruption is guaranteed as are supplier bankruptcies. How this will impact all the big players is anyone's guess but it won't be pretty.

Further government financing is inevitable.

Who's fault is it? Well, there is enough blame to go around including bad management, bloated unions, foreign competition, etc. Now, President Obama is blaming the secured debt holders for the failure to reach a deal. He's right of course but at issue is whether or not they can get a better deal in bankruptcy court than what Obama has so far offered (33 cents on the dollar).

Let's see if Obama's strategy of calling them 'vultures' will force concessions.

Regardless, the future of the auto sector is far from certain and, for the short term, additional pain is all but guaranteed.