A US car crash is waiting to happen
In his acceptance speech President-elect Barack Obama stressed that the road ahead would be long, the climb steep and the United States will not reach its desired destination in one year or even one term.
Those were the words of a pragmatist and in economic terms they amounted to an early profits warning. More caution will be forthcoming.
The focus on the credit markets and the financial stability of the banking system in the US is likely to shift in the next few weeks to another looming crisis.
The chief executives of Detroit’s big three automakers – GM, Ford and Chrysler – are pressing the panic buttons by lobbying House of Representatives Speaker Nancy Pelosi for a full-scale government bail-out on top of $25bn already sought.
GM and Ford are expected to signal a prolonged period of pain today when they release third-quarter results.
And auto industry gloom is not reserved for the American market as Toyota reminded the markets yesterday. The world’s number one manufacturer warned that net income will plummet to a 13-year low in 2008 as it cut its operating profit forecast by 63%.
That was far more pessimistic than analysts had expected and the car giant’s share price responded accordingly. Mitsuo Kinoshita, Toyota executive vice-president, was hardly reassuring about the future at a press conference. “This is the toughest environment that we have ever experienced. It is impossible to tell when things will start to improve,” he said.
Similar to the contagion that hit the banking industry, the downward spiral caused by lack of credit liquidity is affecting emerging markets as well with China and India experiencing a steep decline in auto sales.
Easy car loans were an integral part of the borrowing binge that has haunted world economies as dealers offered heavily discounted offers to offload inventory. Until now out-of-control mortgage financing has been the focus of attention and lenders have paid a heavy price for their profligacy.
With consumer spending in the US contracting, unemployment rising and credit stagnant Obama will learn soon just how poisonous the chalice that he will handle will be.
He has defied the odds by reaching the pinnacle of politics but come January he should know the extent of America’s car crash, which will not be without casualties.
Worthy recognition
Congratulations to Qatar’s Deputy Prime Minister HE Abdullah bin Hamad al-Attiyah for being awarded the Order of the Rising Sun, Japan’s top honour.
As energy and industry minister he has had a year to remember as he has travelled the world at a time when record oil prices have been the focus of global attention. On top of the award that is a recognition of the friendship between Japan and Qatar he deserves a medal for having to answer media questions every five minutes!