Automakers Wait For President Bush To Jump In

The auto industry was battered by the defeat of its bailout package in the Senate. Then word came that the White House was willing to use some of the bailout funds approved earlier for the financial industry. But since then, the Bush administration hasn't acted.

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STEVE INSKEEP, host:

It's Morning Edition from NPR News. Good Morning. I'm Steve Inskeep. We're still looking for clues to the future of the auto industry. We know two big automakers say they are close to bankruptcy. We know that many auto plants will take unusually long Christmas break. We do not know how President Bush will back up his determination to support the automakers; at least that was how we interpreted his determination a week ago. Yesterday, the White House spokeswoman Dana Perino said automakers might be allowed to go bankrupt, though without a disorderly collapse.

(Soundbite of press conference, December 18, 2008)

Ms. DANA PERINO (White House Press Secretary, George W. Bush Administration): By that I mean a disorderly collapse would be something very chaotic, that is a shock to the system. If there's - there's an orderly way to do bankruptcies that provides for more of a soft landing. I think that's what we would be talking about.

INSKEEP: One man well-placed to cover this story is NPR's Don Gonyea. He covered the auto industry in Michigan for years before becoming our White House correspondent, and he's on the line live. Don, good morning.

DON GONYEA: Good morning.

INSKEEP: Is the White House changing what it's willing to do?

GONYEA: We have never known specifically what they would be willing to do. The auto companies, though, and the UAW do not find what they heard yesterday reassuring. I can tell you GM stocks fell yesterday after Dana Perino's press briefing. There's been no official comment from the companies. Again, we're talking about GM and Chrysler here; Ford is not in the mix. But they don't really make the distinction - they haven't publicly so far - between an orderly or a disorderly bankruptcy. The word bankruptcy they feel like would be poison. It would cause customers to lose confidence in them and literally scare them away from their showrooms. So, they're very concerned about this.

INSKEEP: But we heard the White House spokeswoman mention bankruptcy, and Treasury Secretary Henry Paulson is also using that word. Let's listen to Paulson from his speech last night in New York.

(Soundbite of speech, December 18, 2008)

Secretary HENRY PAULSON (U.S. Department of the Treasury, George W. Bush Administration): If the right outcome is reorganization or bankruptcy, then isn't it better to get there through an orderly process, where every effort is made to avoid it, and if it can't be avoided, everyone is prepared for it?

INSKEEP: Don Gonyea, help us interpret that, because Paulson mentions bankruptcy, but also mentions making every effort to avoid bankruptcy. So, which way is the administration leaning?

GONYEA: Well, he seems to be tempering Dana Perino's comments, at least a bit. He's changing the emphasis. He's making the possibility of an orderly bankruptcy - and again, they always use those words together - he's making it seem as though it is the absolute last resort, that they are trying to get a deal that would allow them to avoid that. Now, these talks are underway, between the carmakers and the White House and the Treasury. It could also be a way just to ratchet up the pressure, to really drive home the point in a public way, away from the bargaining table, that this is very serious and that the companies and the UAW need to step up and make sure they are giving all they can, that they can be doing all that they can do in order to avoid that step that they really hope to avoid.

INSKEEP: Because the administration may have money to lend here, but they want to put conditions on it, perhaps (unintelligible).

GONYEA: Exactly. And you know, the assumption has been that the administration would impose something very similar to what was in that bill that died in the Senate last week, but that the money would have to come, obviously, from a different place. The money would come from the emergency federal bailout money.

INSKEEP: Don, what does the president himself say?

GONYEA: Well, he did weigh in on this yesterday, as well. He had an appearance at a think tank in town, the American Enterprise Institute in Washington, a think tank that is dedicated to, you know, to free-market systems. And he was asked if maybe the car companies aren't just looking for a better deal from the White House than they could get from Congress. He stressed that he has not yet made up his mind. He said that this is very serious, but then he added this. Give a listen to the president.

(Soundbite of press conference, December 18, 2008)

President GEORGE W. BUSH: I'm also worried about, you know, putting good money after bad; that means whether or not these autos will become viable in the future. And frankly, there's one other consideration, and that is, I feel an obligation to my successor. I've thought about what it would be like for me to become president during this period. I haven't - I believe that good policy is not to dump him a major catastrophe in his first day of office.

GONYEA: So, what he appears to be saying, at least on this issue, this particular crisis, he does seem to be saying he wants to have something done. It could happen today, next week.

INSKEEP: Don, thanks very much.

GONYEA: Thank you.

INSKEEP: That's NPR White House correspondent, Don Gonyea.

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Chrysler Shutdown Worries More Than Detroit Three

Auto workers at a Chrysler plant. i i

Auto workers make their way to a Chrysler truck plant Tuesday in Warren, Mich. Spencer Platt/Getty Images hide caption

itoggle caption Spencer Platt/Getty Images
Auto workers at a Chrysler plant.

Auto workers make their way to a Chrysler truck plant Tuesday in Warren, Mich.

Spencer Platt/Getty Images
A sign at a closed General Motors dealership i i

A sign at a closed General Motors car dealership is covered Wednesday in Warren, Mich. Spencer Platt/Getty Images hide caption

itoggle caption Spencer Platt/Getty Images
A sign at a closed General Motors dealership

A sign at a closed General Motors car dealership is covered Wednesday in Warren, Mich.

Spencer Platt/Getty Images

With U.S. automakers scrambling to find emergency funding to stay afloat, the Bush administration said Thursday that it would not allow a "disorderly collapse" of General Motors, Ford and Chrysler.

White House Press Secretary Dana Perino said "the overwhelming evidence is that the collapse of the American auto industry would have a terrible negative consequence for our national economy," including massive job losses and the failure of other businesses that depend on the auto industry. But the White House has yet to announce any concrete plans for a structured bankruptcy or other options.

Here, a look at some of the reasons the Detroit Three are running out of gas.

What is the situation today for the U.S. auto industry?

Most auto analysts and experts would agree that the U.S. auto industry is in sad shape. Inventories are stacking up, and with credit markets still dysfunctional — and the economic outlook uncertain — consumers have little appetite for plunking down money for a new car.

Is everyone in favor of preventing the Detroit Three from filing for bankruptcy?

No. Michael Cusumano, a professor at the Massachusetts Institute of Technology's Sloan School of Management, said in November that the U.S. automakers should file for Chapter 11 bankruptcy protection.

The "decline in competitiveness" of U.S. automakers "is a long-term problem, going back to the 1970s and 1980s, beginning with lagging physical productivity in assembling automobiles compared to the leading Japanese companies, and then in quality and also in engineering productivity for product development," he said.

Although they don't get much credit, the companies have moved to cut costs and bring them more in line with foreign competitors. Last year, for instance, the companies pushed the United Auto Workers into a deal that would eventually slash health care costs. Unfortunately, those savings don't really kick in until 2010, and the companies are now mired in a dismal market where they are burning through cash.

Felix Kramer, the founder of CalCars, a nonprofit advocacy group that supports the development of plug-in hybrids, says it's important to remember that 90 percent of a car's cost goes to the companies that supply the parts, with only about 10 percent going toward labor.

"Many people have really underestimated the impact of a bankruptcy of even one of these companies," Kramer says. "People are being very casual about the idea of a bankruptcy here. I think it would be catastrophic for the American economy. Their way forward is with a new generation of green cars, and I think they can do that — they're starting. If they stay in business — the Detroit Three — they will build plug-in cars."

Does the Chrysler factory shutdown put more pressure on the Bush administration to do some kind of a bailout?

On Wednesday, Chrysler announced a monthlong shutdown of its auto plants because of a dearth of cash and a slide in sales caused by tight consumer credit. The company has been lobbying for $7 billion in federal loans in order to stay solvent.

It's not uncommon for automakers to shut down or reduce production at certain times of the year, but it's typically for a short break for holidays between Christmas and New Year's, or during the summer. In past decades, they would shut down for long breaks to shift production lines, says Paul Eisenstein of The Detroit Bureau, an independent auto news service.

"This sort of wholesale monthlong closure is not a sign of anything except the desperation the industry is in," he says. One practical reason for Chrysler's shutdown is that the company couldn't continue to put more cars into an already overstuffed inventory. But the timing also coincides with the company running out of money.

Is the auto crisis spreading beyond Detroit?

Yes. Foreign automakers are feeling the pinch because the recession is global in scale. From Europe to Japan, Brazil, Russia, India and China — all auto manufacturers are caught in a serious slowdown, and there are no safe havens, Eisenstein says.

"This is not unique to Detroit anymore," he says. "The situation is so desperate that Honda and Toyota notably are either temporarily closing or cutting back production at a number of their plants."

Barbara McDaniel, a spokeswoman for Toyota, says the company is freezing any additional hiring and equipment installation for a production plant that will be the only factory dedicated to producing its Prius hybrid for the U.S. market. The Blue Springs, Miss., plant, which has already hired 100 people, was projected to employ about 1,500. "Toyota is evaluating all of its operations around the world," McDaniel says, adding that the company plans to complete the plant's construction next spring. Presently, all Priuses sold in the U.S. are manufactured in Japan.

The slow pace of car sales — for all sizes and types of vehicles, including the Prius — is also an industry-wide trend. That means they're stacking up in car yards near North American plants and, in the case of imports, in port facilities around the country.

Companies like Toyota are also hoping that U.S. automakers stay solvent.

"A bankruptcy of any of the Detroit Three carmakers would be really undesirable," says Michael Michels, a spokesman for Toyota's motor sales division. "Our North American production depends on a lot of U.S. suppliers — more than 500. If any of those are at risk, then our production capabilities would be at risk."

With reporting by NPR's Frank Langfitt, Peter Overby and The Associated Press

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