US car industry on its knees and next for a bailout

General Motors announced on Friday it went through $6.9 billion in cash in the third quarter and warned that its cash holdings would fall short of the minimum needed to run its business without new funding or other drastic action. Basically, either the government helps them out or they are going to have to declare bankruptcy. The consequences of bankruptcy would be horrific and the ripples of it would extend far beyond GM. Ford, the number-two US automaker, said, this week, it had lost $129 million in the third quarter and had consumed $7.7 billion of cash.

Demand for cars is collapsing around the world, as fears of deep recessions in the US and Europe prompt consumers to put off 'big-ticket' purchases and a worldwide credit crunch makes it harder for those who are interested in buying cars to get loans. GM warned on Wednesday the industry faced meltdown. A leading research company, the Centre for Automotive Research, said today that if Detroit's automakers shrink further - even fail - the U.S. economy would suffer a crushing blow, losing at least 2.46 million jobs in the first year alone!

US carmakers have called for an industry-wide rescue package from the government. President-elect, Barack Obama, said on Friday that help for the U.S. car industry was a high priority and urged the Bush administration to do "everything it can". In September, Congress threw them an initial lifeline - $25bn in low-interest loan money. It was not enough to fix customer confidence, it seems, as sales fell to abysmal levels in October. Congress is now reportedly considering a doubling of the low-cost loans to $50bn. With the $700bn banking bail-out package for the banking system bringing the budget deficit to gargantuan levels of almost a trillion dollars, giving more billions to another industry would be a painful decision.

Middle-class America seemed to have made up its mind. The gas-guzzling, but once much-loved Cadillacs, Mercuries or Lincolns have lost their attraction. It would be surprising if all of GM, Ford and Chrysler were to survive in their current form for much longer. The Big Three may well have become two by the end of 2009.