The car industry faces a short-term crisis and long-term decline

EVEN BEFORE the recession, investors were deeply pessimistic about the car industry. Sitting on $1.3trn-worth of legacy investments in factories that rely on a technology that ought to become obsolete—the internal-combustion engine—the likes of Ford, Renault and Volkswagen don’t exactly look well positioned for the 21st century. Now, with car sales collapsing, a dinosaur business that employs 10m people directly faces a moment of truth (see ). Long synonymous with hubris and the inept allocation of capital, it needs to look to the future.Executives say they are better placed today than in 2008-09, when General Motors and others received bail-outs. Most firms have more cash and bigger margins. But this logic gets them only so far. Production in Europe and North America is now 50-70% lower than a year ago. Car firms have high fixed costs, so when they run below capacity they lose money fast. The top eight Western carmakers could burn over $50bn of cash this quarter, reckons Jefferies, a bank. At that rate, they may run out of money by the end of the year.