Thursday, November 20, 2008

Catching Economic Pneumonia

The American Automobile Industry is in serious trouble.

Chrysler and GM are both faced with potential bankruptcy situations. The American federal government is struggling with finding a way to bail them out – hesitant to throw money at a problem where money won't likely solve the plight but instead only post-pone it.

The outlook at this moment is very gloomy for the Motor City of Detroit. This is a town that has already seen itself erode away to a mere shadow of its former metropolis status – with no signs of healing as city political scandals and racial tensions continue to undermine any chance of recovery.

What many American's may not know is that there is also a great deal of the Automobile Manufacturing done on the other side of the Detroit River – in my hometown of Windsor, Ontario. Since the dawn of the industrial revolution brought on by Henry Ford's invention of the mass assembly line, Windsor has hosted major manufacturing facilities for the Big Three – as well as all the supporting services such as tool and dye shops for parts manufacturing.

The vast majority of employment in Windsor is directly related to the manufacturing of American automobiles.

Over the last three years, we have seen plant shut downs and companies going out of business as the Big Three continue to crumble under pressures of low car sales, high gas prices, and the cost of a unionized labor force.

The Canadian federal government is also looking at ways to assist the Canadian Big Three entities. But much like the Americans, they realize that simply throwing money at these problems will not resolve the crisis at hand.

Over the past three years strides have been made in the quality of the Big Three products, as well as the fuel consumption. And the Unions have made some concessions to ease the burden on the Big Three. But in both Detroit and Windsor, the public outcry is a finger pointed right at "foreign" automotive manufacturers.

Right up the 401 from Windsor in Woodstock is the Cami Automotive assembly plant – jointly operated by GM and Suzuki. Up the highway further is the Toyota manufacturing plant in Cambridge. Each is supported by the same parts manufacturers, trucking firms, and suppliers used by the Big Three. As well, there a numerous plants across the United States manufacturing the "foreign" automobiles.

Yet Ford sends their parts to be assembled for many of their models in Mexico.

Quite clearly, the collapse of the Big Three is larger than just North America. The scope of impact of such a collapse would be felt in absolutely every sector of every economy in every country on the planet.

Yet as one drives through Detroit – you see all kinds of signs, billboards and bumper stickers urging their population to "Buy American". And oddly enough, Windsor – a Canadian city - has bumper stickers quoting "Want to lose your job? Keep buying foreign cars!".

I don't think those Canadian Auto Workers realize their American Auto Workers think of them as foreigners taking American Jobs away.

And I can only wonder what the bumper stickers in Mexico say.

If I were a betting man – which I am not – I would bet on the Big Three declaring bankruptcy. I would bet on the Big Three status to be in receivership by the end of 2009. And I would bet that the Big Three would find themselves being completely restructured – and in the end – find themselves to be much more capable of doing business in this new global economy.

Sometimes when something is really broken badly, it has to be completely taken apart, the damaged parts replaced or redesigned, and then put back together again.

And that is what I see about to happen to General Motors, Ford, and Chrysler.

And the World economy will catch a bad cold, but heal.

The North American economy will catch pneumonia but it will survive.

But Detroit and Windsor will disappear as we know them today.

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