Hamish McRae: If the US car industry can't get off the road to hell, we'll be driving there too

Something will be patched up to rescue the three giant US automobile companies – or perhaps one should say two and a half because poor Chrysler is a shadow of its past glory. You cannot rule out the US version of bankruptcy, Chapter 11, which is less onerous than our own. But even without that devastating step, the industry will not be the same again. What we are seeing is one more inevitable step along an unavoidable path. The industry will be smaller, maybe much smaller, even when this particular downturn ends and the long, slow slog upwards can begin.

But what does that mean for us? There are, I suggest, three main ways in which the plight of the car markers will affect the British economy. First, and most obviously, is the impact on our own industry. Second is the impact on confidence in the ability of the US authorities to cope with crisis. And third is the impact on confidence in the supply chain world-wide. A word about each.

Start with us. It is really quite remarkable how the UK has diversified away from reliance on the US producers. Only General Motors are making a significant number of cars here through its Vauxhall plant in Ellesmere Port. All the rest are Japanese, German and Indian. This was not a policy decision made by politicians or bureaucrats. It was simply the result of market forces, brutally deployed. The Indian giant Tata thought it would make a better fist of Jaguar and Land Rover than Ford. BMW had a surprising hit with the Mini. The Japanese found that the quite high cost of manufacturing in the UK was offset by the good profits they could make on their sales.

But as it has turned out, extracting ourselves from dependence on the US giants has left the country's motor industry in better shape than that of other European countries, with the possible exception of France, where the Americans never really managed to sustain a business.

But that is final assembly. Much of the industry is not about this eye-catching element but the multitude of other parts of the production and distribution chain. Ford makes huge numbers of diesel engines here; then there are the component manufacturers; all car companies have to distribute and service their vehicles; and the consumer finance industry has to finance the sales. So the fact that our industry is diversified in ownership, probably the most diversified in the world, does not render us immune to the plight of Detroit. We are just a little less exposed than most European countries.

But I am more concerned about the impact on the world of the rescue process, whatever form that ends up taking. This form will eventually be decided by the new US administration. We will get some sort of patch now, leaving the substantive action to be taken by president Barack Obama. It will in all probability be the first really important decision he takes.

I am aware that what the rest of the world thinks will have zero influence on the decision, and since it is US citizens who will in some form or other have to pick up the tab, that is as it should be. There is no cost-free solution, for Chapter 11 would put a burden on US society because businesses and individuals would suffer as a result.

But the world will be watching. There are vast foreign investments in the US and the money continues to flow across the exchanges into dollar assets to pay for the current account deficit. We have seen the seismic reaction to the failure to support Lehman Brothers and I think the general perception is that this was a serious error, the full consequences of which have yet to become apparent. But the world would not necessarily react in the same way to support for the car makers. Indeed, the reverse might happen: support for manufacturers might be seen as sign of weakness, undermining faith in the adaptability of the US economy and the security of is government.

The even greater concern, though, is that any breakdown in the fabric of the US economy will have knock-on effects on commercial activity worldwide. That is why, on balance, it would be safer to have some sort of rescue rather than risk Chapter 11. The problem is a lack of faith in the supply chain.

If thousands of component makers across the States find they are not being paid for their parts, or that payment is delayed, then the fabric of commerce starts to tear apart. This is bigger than shareholders losing their equity or even bond-holders seeing their bonds not repaid. To bring this back home, look at Woolworths' difficulty in the run-up to going bust in getting wholesalers to supply it with stuff to put on its shelves. They were worried they might not get paid.

One of the things that undermined MFI was that people did not want to pay upfront for large items to be delivered at some later date in case they didn't get their kit. Why have some of the small airlines gone under? Because they had to pay in advance for their aviation fuel before their planes were filled up.

It is unfair, this segregation into strong and weak, but we are all guilty. I didn't book on a major European airline the other day even though it had the most convenient flights; I wasn't sure it would still be flying. That is a reaction as an individual: I was avoiding a potential annoyance. If you are running a business, it is much worse: if a big customer fails to pay for goods or services, you may go under yourself.

This disruption to the supply chain is a killer. Once word gets round that a company is slow at paying, it is in grave trouble. There is always a slight concern in the back of the mind of any financial controller, but now things are much worse. The sudden drop in commercial confidence here may be more a result of a lack of confidence in the supply chain than the admittedly serious decline in final demand.

So what happens next? The reason the US auto industry has such political clout is that every town has a car dealer selling its products. This is not just about Detroit; it is about Main Street, USA.

But every town has its taxpayers, so the solution has to be seen as fair. It also has to be effective, for any bail-out has to force change on an industry that has changed too little. I don't think it will be beyond the capacity of the new administration to get the balance right but this is dangerous. It is dangerous for the industry, dangerous for the US and dangerous for all of us.

'Keep dreaming': Estonia might be small but it can teach us a lesson

The scene is Tallinn airport. On Thursday evening I was changing a few Estonian crowns back into either euros or sterling – whatever, I said to the woman in the currency bureau, was easier.

"Oh, have euros," she said with a grin. "Much better."

But this is not a bleat about the collapse of sterling, dire though it has become. Rather it is a celebration of the competence and delight of Estonians. There is something wonderful about small states, and Estonia with its 1.4 million population has had to make being small an advantage. The former prime minister, Mart Laar, told us that one key factor enabling the country to make its successful transition from a centrally planned economy to a market one was that the government had no money. So it had to figure out ways of doing things on the cheap.

I asked the head of one of its best schools, the Tallinn English College, what was the single greatest advantage they'd had. (Estonia scores very near the top of the OECD study of the ability of 16-year-olds, and quite a bit ahead of us.) His reply: "Limited resources."

Mart Laar even argued that laziness could be a virtue: the reason his government had put all public documents online was that he got fed up carrying around bundles of papers.

Another moral: if you are going to change things, I was told by a top official in the Ministry of Education, choose the right models. For education they were lucky: Finland is just across the water and seems to have the best secondary education in the world. The result is the most technically savvy of any of the new EU member states. Example: their ID cards have a chip which they can use for banking, renewing a driving licence, even paying income tax. It is voluntary – having the card, not paying the tax – but young people at least want one because it is so useful.

So lots of lessons for larger countries, including this one. But the lesson I liked most came from a teacher at that school. I asked her what she felt was the most important message Estonians had for the world. Her reply: "Keep dreaming."

Start your day with The Independent, sign up for daily news emails
News
election 2015The 10 best quotes of the campaign
News
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
News
people
Voices
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'