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Updated: 20/11/2008 | 12:06 AM IST
Why are the Big 3 desperate for a bailout?
Siddharth Vinayak Patankar
Thursday, November 20, 2008 (New Delhi)
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The CEOs of the ‘Big 3’ automakers of the US auto industry made a plea to the US congress to give them a bailout.

NDTV finds out—why are the Big 3 in this desperate situation?

But how did Big Auto get here?

For the past two decades, US carmakers have relied on their bread and butter segments like big cars, pickups and SUVs. Meanwhile, the Japanese and the European carmakers spent big on beefing up capabilities for small and green cars.

Moreover, the product sharing and globalising car platforms was also not actively pursued for the Americans and for a long time the US industry stayed relatively closed to cost cutting innovations and sourcing from low cost countries.

Glenn B Maguire, Asia Chief Economist of Société Générale, said, "We're seeing iconic US names come under stress. GM, Ford, etc; are big businesses, employing eight lakh directly and 20 lakh indirectly in the US. The question is whether the US auto business model is long term viable?"

The chief executives of Detroit's auto makers—General Motors, Chrysler and Ford have appealed in dire language for US taxpayers to help their industry, but couldn't dispel the doubts in Congress that have clouded prospects for a government-led rescue.

However, in appearances before the Senate Banking Committee, the leaders of these companies, together with the head of the United Auto Workers Union, appealed to a US congressional panel, arguing that the shaky US economy couldn't withstand a collapse of any of the companies.

Rick Wagoner, CEO of General Motors, said, "What exposes us to failure now is not our product line-up, not our business plan, not our employees and their willingness to work hard and neither our long term strategy. It is just the global financial crisis."

Also, the CEO of Chrysler LLC, Robert Nardelli, sounded grim as

he pleaded to the US congress to allocate the $25 billion dollars bailout for US auto industry.

"We're asking for assistance for one reason; to address the devastating automotive industry recession caused by our nation's financial meltdown," said Nardelli.

Meanwhile, the proposal for the automakers or suppliers needs assurances of the long-term viability of the companies. The loan would be for 10 years with a five per cent interest for the first five years and nine per cent for the next five.

But there would be ceilings on compensation for both the management and the retirees. 

Ben Bernanke, Chairman of the US Federal Reserve, said, "TARP has been instrumental in saving the world from a deeper financial crisis that would have dire consequences for the US economy."

So will the great US industry survive?

Analysts opine that the brands are too iconic to fade away.

However, they just might be smaller and leaner in the future and some may also end up being owned by non-American companies.

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