Emerging Markets Help Ford (F) And GM (GM) Get Their Loans

The premise for Detroit going to Washington for $50 billion in loan guarantees is that the auto industry needs cheap money to retool factories that can build more fuel-efficient cars. US buyers don’t want SUVs anymore and GM (GM), Ford (F), and Chrysler may not have the capital to handle the long downturn in US car sales and rebuild their manufacturing infrastructure at the same time.

The case Detroit is making may be bogus. If gas prices keep falling the so-called Big Three might see enough of a renewed interest in their unattractive cars to hang on another year or two.

Any Congressional staff member trying to get his boss to look good at hearings on the loans will want to make the case that GM and Ford do well in Latin America and Asia. Why give the auto makers money when they have cash flow from outside the US?

Too bad that auto sales in India and China are not what they used to be. China auto sales dropped almost 7% in July when compared with the same month a year ago. India called in its numbers for last month and they reeked. According to The Wall Street Journal, "India’s vehicle sales last month fell 4.4% to 94,584 cars from 98,893 cars a year earlier."

The trend in India and China may not improve anytime soon. A slowing global economy means that fewer people will move into the middle classes in those nations. That indicates that base of people who can afford a car is not going to improve sharply. Markets that Detroit has been counting on are probably in the process of stagnating. The road to prosperity outside the US may no longer hold such an abounding attraction.

At least the beggars from Detroit have another fact to add to the case that they are truly bereft.

Douglas A. McIntyre