You knew it, I knew it… my hairless cat new it.   China was going to make major headway into the automotive industry by picking through the bones of Chrysler and GM.  The 1st bit to go is the Hummer line.

General Motors Corp. has struck a deal to sell its Hummer truck unit to a Chinese industrial business, the two companies confirmed Tuesday.

Privately owned Sichuan Tengzhong Heavy Industrial Machinery Company Ltd., based in China, will acquire the truck brand, which has been part of GM since 1999. Tengzhong said it plans to keep Hummer’s management team.

“We plan to … allow Humer to innovate and grow in exciting new ways under the leadership and continuity of its current management team,” said Yang Yi, chief executive of Tengzhong.

Yang said the deal “will allow Hummer to better meet demand for new products such as more fuel-efficient vehicles in the U.S.”

The companies said the deal would likely close by the end of September.

This leaves other brands like – Pontiac, Saturn and Saab to be sold off or left to die.  One could easily see how a Eurpoean company could pick up Saab, but what values does Pontiac and Saturn hold for potential buyers?  Saturn has never turned a profit and Pontiac as a razor thing margin… The value – specifically for Saturn – is the dealer network.

If a Chinese company wanted to have a pre-establish dealer network this is the chance – buy Saturn and exploit the dealer network. As I believe Chinese manufactures have the ultimate aim to tap the U.S. market, such a development wouldn’t be a surprise to me.

Roughly a month ago the big three went before Congress asking for financial assistance (bailout, loan, pick the term you would like to use) due to a potential collapse in the industry.  Actually, General Motors and Chrysler were the two organizations hurting the most.  Turned out that Ford, the company everyone expected to fall first, was in a better position that anyone had expected.

During Congressional proceedings, and a number of times since, General Motors boldly stated that “Bankruptcy is not an option”.  People scoffed at the arrogance of GM, except a large number of Politicians. Congress continued to push forward with financial assistance, until the air was let out of their balloon – Congress decided that it wasn’t going to happen.

Almost immediately the Bush Administration stated they would use TARP funds in order to prevent the collapse of the Detroit three…. and then nothing happened.  Deafening silence filled the space where there was once near definitive support from the Administration.  No real progress or information became available until today.  Suddenly a “controlled” bankruptcy was an option.

I thought everyone – Administration and automakers – said they would not accept such a situation.  But what exactly is a controlled bankruptcy?  Think about recent government actions – who have they helped?  

A controlled bankruptcy will look something like the AIG bailout. 

If this is the option chosen, I suspect the government will tell the affected automakers what products they can have, what lines need to be sold or closed, and what price structures need to be in place.  Oh, and they will have a majority of their debt wiped away.  Even with that option, members of the auto industry still say Bankruptcy is not an option – structured or otherwise.

Even in the face of some form of help, the industry does not want to change. What?  Yes, they still say bankruptcy is not an option as it will destroy the brand.  What they seem to be missing is that, essentially, their business needs to be completely restructured to achieve a level of competitiveness in the marketplace and have no ability to do so (and maybe no desire).  yet they have no desire to make the necessary changes. 

Tomorrow may very well be an interesting, if not, historic day in the economy.

The government has stakes in major financial institutions, is about to provide financing to the auto industry, and some speculate there may be a nationalization of the industry.  Where is American Capitalism headed? 

For example..

One stipulation the auto industry faces with the bailout is the appointment of a “Car Czar”.  Whoever is appointed to the position has the ability to determine the manufactures continue to maintain “a product mix and cost structure that is competitive in the United States market.” (House.gov)

A product mix and cost structure?  Does this not sound like the person who is the “Car Czar” has the ability to determine what cars should be sold in the US marketplace, and does it not sound like they have the ability to influence the price?

The whole point of a free market economy is that goods and services are traded/sold  for a price that is determined by both parties (buyers and sellers).  When price setting take place  we can no longer say we are truly a free market economy, it resembles the economic environment of China.  Sorry, it really does.

Let’s face it, a true free market economy has not existed for a long time in the United States, if ever.  What we see now, due to the recession, is the illusion giving way to reality.

Everyone keeps talking about what would happen if the auto industry went into bankruptcy, and the one thing people consistently talks about is the autoworkers (obviously).  There are roughly 2 million workers in the industry be it assembly, auto parts or in dealerships. 

Here is how it breaks down, via CNN/Money:

State	Rank	Total jobs	Auto assembly jobs	Auto parts jobs	Auto sales jobs
Michigan	1	241,883	57,997	144,413	39,473
California	2	189,749	7,430	42,741	139,578
Ohio	3	159,061	21,974	89,244	47,843
Texas	4	137,191	9,104	28,487	99,600
Indiana	5	111,665	12,622	71,403	27,640
Florida	6	99,199	915	12,083	86,201
Illinois	7	93,763	7,227	35,936	50,600
New York	8	82,357	607	28,792	52,958
Tennessee	9	79,424	10,636	42,415	26,373
Pennsylvania	10	76,759	533	17,128	59,098
Kentucky	11	65,468	13,664	37,621	14,183
North Carolina	12	59,276	522	20,662	38,092
Missouri	13	55,722	11,122	17,935	26,665
Georgia	14	54,954	1,966	14,960	38,028
Alabama	15	49,346	10,519	20,189	18,638
Virginia	16	47,485	1,777	9,978	35,730
Wisconsin	17	46,488	4,037	15,699	26,752
New Jersey	18	43,294	688	7,100	35,506
South Carolina	19	41,285	4,773	18,863	17,649
Arizona	20	34,973	67	5,886	29,020
Washington	21	31,343	197	5,788	25,358
Maryland	22	30,688	205	4,192	26,291
Minnesota	23	29,598	832	6,059	22,707
Massachusetts	24	28,464	178	3,839	24,447
Iowa	25	24,634	57	10,611	13,966
Colorado	26	23,510	55	3,408	20,047
Oklahoma	27	21,484	2,037	5,048	14,399
Connecticut	28	21,086	166	5,734	15,186
Oregon	29	21,067	115	4,909	16,043
Mississippi	30	20,879	3,640	7,288	9,951
Louisiana	31	19,404	82	2,139	17,183
Kansas	32	19,036	2,984	4,922	11,130
Arkansas	33	17,142	0	6,981	10,161
Utah	34	15,684	10	5,442	10,232
Nebraska	35	13,650	15	5,303	8,332
Nevada	36	13,041	65	1,511	11,465
West Virginia	37	8,966	0	2,295	6,671
New Mexico	38	8,763	0	842	7,921
New Hampshire	39	8,329	0	797	7,532
Idaho	40	7,475	61	1,049	6,365
Maine	41	6,864	0	636	6,228
Delaware	42	6,600	946	1,036	4,618
North Dakota	43	5,539	212	1,236	4,091
Montana	44	5,410	0	1,020	4,390
South Dakota	45	5,194	0	1,104	4,090
Hawaii	46	4,968	0	393	4,575
Vermont	47	4,143	0	1,145	2,998
Rhode Island	48	4,123	0	476	3,647
Wyoming	49	2,817	0	287	2,530
Alaska	50	2,470	0	133	2,337
District of Columbia	51	242	0	20	222

Ok, so after the bailout goes through – and GM or Chrysler goes bankrupt in a few months, or a year, what will happen to these people?  Isn’t giving a loan simply giving false hope?

Don’t know who did this, but nice work by the creator!

Unless your head was buried in a pile of cocaine, or sand, whatever works for you, you know that the Big three automakers are really hurting these days and that pain really hit the market last week.

As Congress attempted to provide financial aid to the automotive industry some startling financial information became public – Ford has roughly 38 billion dollars on hand, or about three years of funding, where as GM has about 20 Billion, or one year worth, and Chrysler has 11B in the bank but no true estimate on how fast they are burning cash (since they are no longer public they do not need to disclose their financial information).

Rumors of bankruptcy, automotive collapse and a massive waive of unemployment was all over the press. It seemed that GM and Chrysler were about to fall apart overnight. While the misfortunes of Detroit have been documented for some time the rapid unwinding of the credit markets only added to woes of the carmakers. One rumor that received very little press, but actually makes business sense, was that GM was an acquisition target of Chinese carmakers SAIC and Dongfeng.

Little does most of the general U.S. public know but GM owns 35% of the Chinese automotive market share is considered to be a luxury brand! Let me put that in different terms – GM is a successful company in China. As SAIC and Dongfeng are attempting to expand market share in China and the U.S., plus achieve significant economies of scale, an acquisition of GM by a Chinese company only make good business sense.

If a Chinese rival acquired GM, do you think the companies’ workforce would be welcoming of their new overloads? Do you think the pride of individuals who get in the way, or do you think they would be happy for the survival of the “American” giant?

While I have no answer, I find such a scenario to be the ultimate irony for the financial crisis facing the United States today.