October 23, 2008
The outlook for Detroit looks gloomy. Racing towards bankruptcy, the Big Three domestic motor companies are scrambling for solutions. GM, for one, is hoping that the acquisition of Chrysler will solve its cash-flow deficiencies. (Chrysler reportedly has $11 billion in assets). Yet, it seems that even prospective mergers will be unlikely without government assistance -- Detroit simply doesn't have the cash to save itself.
On Wednesday, Michigan's Congressional delegation demanded that Congress step in to provide Detroit automakers with some kind of prescriptive financial bailout, according to John Stoll of The Wall Street Journal. In the case of GM, from all accounts it seems likely that the former Detroit giant will receive that much-needed booster shot from Congress to facilitate a merger, making a government-funded bailout the likely end-result of many of Detroit's problems.
And Congress is reportedly considering an intervention with less griping and paper-pushing than usual, because it is believed that Detroit is close to the tipping point. If one of the companies files bankruptcy, the other two will not be far behind. And that would mean that the government would be forced to take on the pension costs for Detroit's hundreds of thousands of retirees and spouses. "If [Detroit] needs support to make some kind of a merger between Chrysler and another auto company happen, we clearly ought to do that," said Senator Carl Levin of Michigan, "No other country in the world would stand by and watch major corporations go under this way without trying to do something about it."
Comments | 12 Total
October 23, 2008 at 1:05pm by Rip Empson
It's really hard to watch what's happening in Detroit. An entire industry -- one that had long been symbolic of American strength and innovation -- has been reduced to almost nothing. Like what's happened on Wall Street, this is the result of a lack of foresight (with a splash of greed) and is self-inflicted, but it's still hard not to sympathize with Detroit -- a crumbling industry that's become a synecdoche for a crumbling city.
Detroit has no cash, and part of that is because Americans can't afford to buy cars right now, and part of that was due to the high oil prices before the Wall Street fiasco. GM may not even have enough money to independently acquire Chrysler. They need the money that Chrysler represents -- they're jonesin' for it -- but they have to beg for money from Congress, like a spoiled teenager. It's a sad situation...
The government HAS to bail out Detroit, for what Detroit represents, but the bailout should have strings attached. The American auto industry needs to alter its business plan -- to green-ify -- and quickly. We cannot keep asking the government to bailout faulty institutions without asking these institutions to be accountable. That being said, bail out Detroit, and do it quick -- there's really no other choice.
October 23, 2008 at 1:25pm by Brendan Collins
A bailout would certainly help US automakers in the short run. But is it wise to bail out a dying industry? Can you bail out obsolescence? Domestic auto manufacturers need to make drastic, drastic adjustments to how they build cars (efficiency-wise) if they want to stay afloat. The industry needs to be proactive in anticipating consumer trends -- e.g. gas mileage, affordability in times of recession -- rather than reactive. Think people are going to be buying Escalades anytime soon? Snowball's chance in hell. Detroit's only hope isn't a bailout; Detroit's only hope is a sea change in how we think about the automobile's place in our lives.
October 23, 2008 at 1:48pm by Dale Thompson
This was the topic of conversation on the Diane Rehm Show this morning. Check out the podcast @ http://www.npr.org/rss/podcast/podcast_detail.php?siteId=5495237.
Diane and her guests covered the entire landscape on this issue from all sides. As a fiscal conservative and open market thinker, I have a hard time with bailouts and other such government interventions. However, in this case we are talking about manufacturing capability that may never be recovered. We have already lost too much manufacturing capability in the USA and turned into a gross net consumer rather that a net producer of goods. Producing goods with interinsic economic value is essectial to financial health and wealth creation. As we have seen, our consumer culture and willingness to send jobs out to the lowest bidder is having grave consequences. If GM and Ford are allowed to fail, the ultimate impact will be the loss of about 2 million jobs (auto industry and industry-related) in the US. Moreover, the foreign manufacturers will also pull out because the parts supplier market that supplies parts to all car makers, dealers and repair shops will collapse. Chrysler will fail regardless of actions taken and should be allowed to fail. The current bailout proposed is really too little, too late, and too restrictive to be of much value. GM has at best 12 months of working capital left and Ford 18 months at best. The current bailout proposal will not be truly available until the spring of 2009.
October 23, 2008 at 3:38pm by Steve Rausch
What has happened to taking care of yourself in this country? Why is EVERYONE looking for the government to provide solutions? Detroit represents the absolute worst of American industry - they didn't listen to their customers until the overseas auto companies forced them to change and now they want those same consumer taxpayers to bail them out.
October 23, 2008 at 3:39pm by Mel Blitzer
Self Inflicted is right. It is probably not a matter any longer as to whether this industry can recover. The mind set of the industry is so entrenched from CEO to line worker that it is hard to see a turnaround with or without government money- and Chrysler is the proof in the pudding. Over time the ancient world view, practices and policies of the industry brings its ailing companies back to the gas guzzling, ill styled, low quality norm.
Better to bid to be the off shore site for the Japanese and Europeans.
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Mel Blitzer
October 23, 2008 at 3:50pm by Bobby Segars
I'm just curious if anyone else sees the UAW as a huge contributor to Detroit's decline? Seems to me they have sucked those companies dry. I'm not sure if it would be possible, but it seems to me if the companies go bankrupt, some new investor could buy up the car making capacity without the dead weight of the unions and potentially make a successful company.
FYI, I believe unions did a great thing by fighting for and acheiving a safe workplace. Now, however, I truly believe they are a drag on our economy.
October 23, 2008 at 8:00pm by jon Dougal
when do the taxpayers get a break - we are supposed to be a capitalistic society. That means risk takers win when they do well and loose when the f - up! When will the bail outs stop - at public expense.??
October 25, 2008 at 9:41am by Paul Rowland
Its a terrible situation if they go bankrupt. Any intervention should be based on long term stability.
Maybe a switch to EV's and EV infrastructure could really revive the industry and provide a long term future. Clearly they would need the support of the government. see www.betterplace.com the the USA could be set up for around 100 billion. in addition to that a large number of jobs are created by the support services and infrastructure.
there is a group on facebook that you can register support
http://www.facebook.com/home.php#/group.php?gid=26231843446
November 18, 2008 at 3:59pm by Matt Timothy
It's distressing that so many who know so little would so willingly throw a strategic American industry, and millions of employees and retirees, so quickly under the bus.
I'll take a number and stand in line to join in the criticism of Detroit's leadership. But to reduce the issue to simple bad management is incredibly wrong. There is no industrialized nation on earth that does not provide some level of protection and support for strategic national industries--steel, auto manufacturing, air travel. Except us. We don't, in our belief that market forces provide the best means of ensuring their strength. That's fine, but now the markets have collapsed. Toyota, Honda and others aren't selling many cars right now either. But they enjoy an absence of billions in North American legacy costs, protected domestic markets and a fraction of the health care and retirement expenses of U.S. makers in their domestic markets. Those are immense competitive advantages that become the game changer in a global economic collapse.
And please, no more mythology about how Detroit created the market for gas guzzlers, and the need to punish them for it. We created it. We loved them because they were safe, roomy, comfortable and utilitarian. We the people bought them by the millions. GM and Ford never persuaded us to buy anything we didn't really want.
If we allow these companies to fail we will cede this vital industry to foreign interests. I think Honda and Toyota cars are great--I own them. I want them to be part of the competitive landscape in the U.S. But I do not believe we are wise to allow them to have complete control over an industrial segment that is so critical to U.S. manufacturing.
And to those who say, let the employees relocate once the companies have failed, I would ask, to where? And to do what? What will we do with two or three million displaced people from the industrial Midwest alone? And what kind of nation are we if we allow that to happen?
February 3, 2009 at 6:32pm by shekhar atara
thank you
http://www.industrialstrengthstaging.com
March 28, 2009 at 3:31am by petty deh
Many auto makers most especially Renault are now facing large decline of sales.. and the global crisis affects every workers in the industry itself. No wonder why we've heard about laying off their workers. .
March 31, 2009 at 8:37pm by petty deh
Maybe U.S. automotive industry blame themselves for all of this neither the 'world financial crisis' issue. Detroit should be making better and fuel efficient speedy parts cars that people wanted to buy.