No wonder the U.S. carmakers are in meltdown and begging to be plugged in to the Treasury’s life-support machines.

Don’t be misled, though — the something that is rotten in the auto industry has nothing to do with the credit crunch, and everything to do with years of mismanagement, shoddy products and bad choices.

Consider the credit-rating histories of General Motors Corp. and Ford Motor Co. For both companies, the rot started all the way back in August 2001, when Standard & Poor’s put the A grades they had enjoyed for a decade on review for downgrade. In October of that year, they each suffered a two-level cut to BBB+ that left them just three moves away from junk status.

So seven years ago, the car companies were already on the slide, after years of their Japanese rivals stealing market share with improved production methods and better reliability. That was well before the words “credit crunch” had become as ubiquitous as “would you like large fries with that?” or “the new Bond film isn’t as good as the previous one.”

80 Percent Loss

Further cuts followed, with S&P finally putting investors out of their misery by dropping Ford and General Motors to junk in May 2005. By then, GM’s US$3 billion of 8.375 percent bonds sold two years earlier and repayable in 2033 had already declined by 26 percent; bondholders now are staring at a loss of more than 80 percent of their initial investment.

So when GM Chief Executive Officer Rick Wagoner said this week that allowing U.S. carmakers to fail would trigger a “catastrophic collapse” in the economy, he really should be typing up his own resignation letter. Calls for investment bankers to forgo their bonuses are both understandable and justifiable in the current climate; what about the US$14.4 million Wagoner pocketed in total compensation for 2007, according to Bloomberg figures?

Moreover, the dire warnings used to persuade U.S. politicians that they should give the auto industry a blank check similar to the one Treasury Secretary Henry Paulson has signed for the finance guys smack of extortion.

“Such a level of economic devastation would far exceed the government support that our industry needs,” Wagoner said this week.

“This is about much more than just Detroit. It’s about saving the U.S. economy.”

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