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U.S. Automakers Lobby For Federal Assistance

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U.S. Automakers Lobby For Federal Assistance

Economy

U.S. Automakers Lobby For Federal Assistance

U.S. Automakers Lobby For Federal Assistance

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  • <iframe src="https://www.npr.org/player/embed/96187971/96187948" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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General Motors CEO Richard Wagoner i

General Motors chairman and CEO Richard Wagoner in September. Members of the Michigan congressional delegation are lobbying Treasury Secretary Henry Paulson to rescue GM and other U.S. automakers. Brendan Smialowski/Getty Images hide caption

toggle caption Brendan Smialowski/Getty Images
General Motors CEO Richard Wagoner

General Motors chairman and CEO Richard Wagoner in September. Members of the Michigan congressional delegation are lobbying Treasury Secretary Henry Paulson to rescue GM and other U.S. automakers.

Brendan Smialowski/Getty Images
Chrysler headquarters in Michigan. i

The Chrysler headquarters building in Auburn Hills, Mich. The company is in merger talks with General Motors. Bill Pugliano/Getty Images hide caption

toggle caption Bill Pugliano/Getty Images
Chrysler headquarters in Michigan.

The Chrysler headquarters building in Auburn Hills, Mich. The company is in merger talks with General Motors.

Bill Pugliano/Getty Images

Detroit automakers are asking for taxpayer money to get them through the credit crisis. It's the latest example of an industry that has turned to the federal government for help as the economy has worsened.

First, it was investment banks like Bear Stearns. Then, the giant insurer American International Group Inc.

And then last week, Michigan's congressional delegation wrote a letter to Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.

The Request For Cash

They asked the government to pump cash into Detroit's ailing car companies. The problem: General Motors and Chrysler can't sell enough vehicles, and they are burning through money.

The stakes are high "because when your cash runs out, you're dead," says David Cole, who runs the Center for Automotive Research, a think tank in Ann Arbor, Mich.

Cole knows many blame auto executives for Detroit's problems. But he says the financial crisis has swamped genuine efforts to fix the business.

And if the government doesn't help, Cole says it will face even bigger troubles.

"They say, 'Well, it's the fault of this industry, now they should die.' Well guess what: If they die, they're going to take a lot of our economy down with it, and people better understand the consequences of this before they gloat over this kind of thing happening," he says.

Cole says a collapse would not only put many car factory workers on the street. It would also hammer a network of auto part makers stretching all the way to Asia.

"This is an industry whose impact spreads far and wide. Literally, if one of the major players goes down, it could take out several million jobs and you'd look at a cost that would be well beyond $100 billion."

Running Out Of Time

How much time do GM and Chrysler have before they run out of money? Cole says months.

Cole says the firms want the government to guarantee loans. Then, they could use that money to manage a credit crisis that is taking a toll across the board.

"Customers are having trouble getting financing to buy, dealers are having trouble financing the cars in the dealerships, and obviously the manufacturers and suppliers are having a difficult time financing their business," he says.

Once credit eases, Cole says he is confident car companies can rebound pretty quickly. But other longtime analysts, like Maryann Keller, disagree.

"This is going to be a lot longer and uglier than any of us thought," says Keller, who runs her own consulting firm and wrote Rude Awakening: The Rise, Fall and Struggle for Recovery of General Motors.

Indeed, the nation appears headed into a serious recession. Car sales are way down. Even if credit loosens, they are unlikely to bounce back soon.

"Unwinding a decade-long party that should never have happened is going to have serious repercussions as people pull back in their spending. And that's not going to be pleasant, easy or quickly repaired," Keller says.

A Bailout For Detroit?

She says the public won't like bailing out Detroit. After all, car company leaders pursued strategies that went sour.

For instance, Detroit bet heavily on high-profit SUVs, only to see consumers turn away when the price of gas spiked.

"No one in their right mind would say that they're deserving of loans or support," Keller says. "You can't. They have gotten to their current market shares because of 30 to 40 years of mismanagement."

But Keller also doubts a car company could survive bankruptcy. Given the choice between buying a car from a bankrupt company or a solvent one, consumers will almost certainly go with the latter, she says.

Whether they get federal money or not, Chrysler and GM are already working on their own solution — a merger.

Such a deal would give GM more cash and some good brands, like Jeep and the Dodge Grand Caravan.

But it would also involve more layoffs that might number in the tens of thousands. And — at the moment — that may be the best case scenario for Detroit.

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