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If Big Three Fail, Could Foreign Automakers Take Up Slack?

Here's one thought that's been running around in our head as Detroit's Big Three automakers ask Congress for money to stay in business: If they fail, would foreign automakers be able to produce enough vehicles to satisfy the demands of U.S. consumers?

Think about it this way: Suppose Detroit's automakers don't get government help and are forced to declare bankruptcy. They maintain that no one will buy a car from a company in bankruptcy, so it wouldn't be a reorganizational bankruptcy; it would be a liquidation.

That means the assembly lines would shut down and GM, Ford and Chrysler would be left only with the vehicles already on their lots.

Once those run out, would Toyota, Honda, BMW, Hyundai, Nissan, etc., actually be able to build enough cars to satisfy American consumers, who already own about 250 million registered vehicles?

If the answer is "no," then that may argue for bailing out the Big Three, if only to satisfy the U.S. market.

But if the answer is "yes," then that may argue for letting them fail. (Take into account how much the price of imported vehicles would rise without competition from the Big Three.)

We asked this question of Dave Cole, chairman of the Center for Automotive Research, an independent outfit, and general car smart-guy. He e-mailed back yesterday:

"I think the answer in the very short-term is 'yes.' " he writes. "However in the mid-term, 'no.' "

Cole goes on to write: "I had dinner with some executives with Toyota, Honda and Nissan last evening and they believe that the entire industry would go down for a considerable period, including them."

The problem, Cole says: Even if the foreign automakers could maintain, or even step up, their current levels of production, they simply do not have enough factories and assembly lines to crank out the equivalent of the 8.6 million U.S. cars Americans bought last year.

GM's Rick Wagoner, Ford's Alan Mulally, Chrysler's Bob Nardelli and UAW president Ron Gettelfinger testify before the House this morning, hoping to persuade Congress to approve $34 billion in loans to keep the automakers in business.

-- Frank Ahrens
The Ticker is Twittering!

By Frank Ahrens  |  December 5, 2008; 1:15 PM ET
Categories:  The Ticker  | Tags: Chrysler, Ford, GM, General Motors, Honda, Toyota, automakers, bailout  
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Comments

Well, I guess I better buy a new Corvette for Christmas and be a real patriot!

Posted by: kondrek | December 5, 2008 3:02 PM | Report abuse

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