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Sunday November 2 2008

Global pile-up ahead as US auto industry loses its driveFord, General Motors and Chrysler were once supreme; now with consumers rejecting gas-guzzlers and car loans drying up, the outlook is bleak for Detroit - and the rest of the world will soon feel the pain too.

For sale: four-bedroom detached bungalow, some work needed, cost: $800. The catch? It's in Detroit, home to the once mighty Ford, General Motors and Chrysler, and not many people want to live in the Motor City now that the American car giants are laying off tens of thousands of workers.

The bungalow is not the only bargain basement property up for grabs: thousands of others are on the market for $10,000 or less. One estate agent who has sold 50 properties - mostly foreclosures - in Detroit is trying to remain upbeat but admits: 'It is a blue-collar town like a lot of other American towns, but it has been hit harder than most.' He says there are houses are going for $5,000 while homeowners next door are struggling to pay a $60,000 to $70,000 mortgage on an identical property. 'It's obviously devastating for them.'

The Detroit property market and the US car industry are mirror images: both are in freefall. Speculation is mounting that the government is planning a bail-out of the giant 'Detroit Three'. On Thursday, Presidential candidate Barack Obama added to the clamour, calling for a doubling of the $25bn in government loans recently approved by Congress to help the industry make more fuel-efficient cars.

Washington is also said to be trying to engineer a merger of GM and Chrysler as analysts predict that the latter's new owner, private equity firm Cerberus, could pull the plug on it. Without dramatic government intervention, analysts predict all three companies will run out of money some time next year.

This side of the Atlantic, the mood of car manufacturers is less grim. But not by much, as they fear they could be next in line: car makers are slashing production across the board to cut costs as sales slump. In the UK, Japanese firm Honda last week said it would cut output by a tenth - 32,000 vehicles, rather than 22,000 as previously planned. All the other five major carmakers in the UK - Toyota, Nissan, Jaguar/Land Rover, Ford and GM - have made similar moves, putting workers on four-day weeks and getting rid of overtime and agency shift workers. No one knows how many 'temporary' production cuts will be made permanent, or when - as will surely happen - jobs are shed along with output.

Tim Webb: Global pile-up ahead as US auto industry loses its drive | Business | The Observer
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