MADELEINE BRAND, host:
This is Day to Day. I'm Madeleine Brand.
ALEX COHEN, host:
And I'm Alex Cohen. We turn now to a sector of the economy that's in deep trouble, the auto industry. Coming up, one contrarian argues, let the Big Three fail. That is not the going feeling on Capitol Hill, however.
BRAND: House Speaker Nancy Pelosi is calling for a rescue package because, if GM, Chrysler, and Ford go under, there could be massive consequences for the entire economy. By some estimates, 10 percent of all jobs are supported by the auto industry. NPR's Celeste Headlee reports.
CELESTE HEADLEE: Three million jobs, that's what a new report from the Center for Automotive Research says will be lost, if the Big Three automakers collapse. The industry-supported group says it would also mean an extra $60 billion tacked onto the federal deficit. That's in the first year. Some dispute those findings, but Mark Shineman (ph) of Pace University in New York says the fall of the Big Three would still be severe.
Prof. MARK SHINEMAN (Pace University): This is of such great consequence to a very relatively high-salaried work force that the government will have to be brought into this.
HEADLEE: And Congress is getting involved, with House Speaker Nancy Pelosi, Senate Majority Leader Harry Reid, and the entire Michigan delegation sending letters to Treasury Secretary Henry Paulson. They're asking that a portion of the $700 billion financial bailout package be lent to Chrysler, GM, and Ford. And financial consultant Patrick O'Keefe says assistance to the Big Three wouldn't benefit the auto industry alone.
Mr. PATRICK O'KEEFE (Owner, O'Keefe & Associates Consulting): They are the largest consumer of plastic, the largest consumer of glass, the largest consumer of steel, and the largest consumer of electronics.
HEADLEE: O'Keefe says the Chrysler facility in Auburn Hills, Michigan is the third-largest corporate headquarters in North America and the eighth largest in the world.
Mr. O'KEEFE: Can you imagine that going dark? I mean, that's just catastrophic thinking about, you know, the number of employees that just work out of that one facility would be a sad tombstone for the auto industry.
HEADLEE: And O'Keefe says the ripple effect would be enormous. George McGregor is the president of UAW local 22, and he says every employee deserves protection.
Mr. GEORGE MCGREGOR (President, Union of Auto Workers Local 22): I'm not only talking about UAW members. You know, you are an American citizen, all right? You have a family to raise, a kid to put through college regardless of what kind of job you have. And if you lose your job, that's devastating to your family.
HEADLEE: And potentially devastating to several Midwestern states. Jerry Flint is a columnist at Forbes magazine. He says, if the prospect of massive unemployment isn't a good enough reason to help the Big Three, then legislators should consider the welfare of Michigan, Wisconsin, Indiana, Ohio, and others.
Mr. JERRY FLINT (Columnist, Forbes): You'll have four, five, six ruined states that will take, you know, a decade to 15 years to really recover. You want more reason?
HEADLEE: Flint says there's also an issue of national security.
Mr. FLINT: Also, when the next war comes, if we needed tanks or trucks, we'd have to buy them from Toyota, and you don't know if Toyota would sell them to us.
HEADLEE: Michigan's governor, Jennifer Granholm, is part of Barack Obama's economic advisory team. She says the country cannot afford to ignore the auto industry's plight.
Governor JENNIFER GRANHOLM (Democrat, Michigan): It would be a massive American mistake, a huge cratering of our national economy, and a wrong move to allow this industry to fail.
HEADLEE: Granholm says the auto companies can recover and thrive with help from the feds, just enough to get them through the current economic crisis.
Gov. GRANHOLM: They've renegotiated the contracts with the UAW. They've offloaded all of the healthcare costs. They've closed down extra capacity. They have got product in the pipeline.
HEADLEE: But those products will never make it to the showroom floor without help from the feds. Granholm also points out that this isn't just about the Midwest. It also affects technology companies in Silicon Valley, advertising agencies on Madison Avenue, and GM, Chrysler, and Ford dealerships in practically every town in America. Celeste Headlee, NPR News, Detroit.
BRAND: Not everyone thinks a massive government bailout for the auto industry is a good idea. President Bush is resistant, as is Treasury Secretary Henry Paulson, to using part of the $700 billion bailout money for the auto industry. And there are financial experts who think letting the car companies fail would be a good idea.
Andrew Horowitz in one of them. He's a money manager and author of the book, "The Disciplined Investor." And first of all, why is it, do you think, that bailing out Detroit is a bad idea when we just heard that there would be devastating consequences?
Mr. ANDREW HOROWITZ (President and Founder, Horowitz & Company): I think that, you know, the word bailout is the biggest issue here because we have seen just a terrible use of money by the automobile companies over the years. And just giving them money outright, as has been done on the financial side, just to kind of bail them out and prop them up is not a good idea.
Now, let's also state that, obviously, the other side of losing jobs is also not a good idea. So there needs to be some other kind of very creative plan put together where we can retool the automobile manufacturers and the entire industry to be something much different than it is. And government assistance for that is fine, but a bailout is not.
BRAND: Well, they are saying yes, that's fine. And we would like to retool, thank you very much. But right now, we're in danger of not meeting payroll. We need the money.
Mr. HOROWITZ: Right, that's a tremendous problem. So the fact is that, to give us a three, four, six-month time period where we can extend the problems and, you know, keep this zombie company alive is fine. But the fact is that we need to have an all-out assault on a change first before we just gratuitously give taxpayer money to the automobile companies, which have proven time and time again to be reckless in their spending.
BRAND: Well, do you think that letting them fail might be a good idea?
Mr. HOROWITZ: You know, I have mixed emotions about that. And I think that the evidence shows that, if they do fail, it is going to be catastrophic at this time. And the problem is that they have failed, by the way, just nobody's told them. The one big issue is, they have a terrible inventory management. I've created a plan that would be much better to use, a kiosk-like sales process, where they have 20 to 30 cars in the lot. You order it like a Dell computer, and, you know, that will create a much greater efficiency all over.
One of the big issues is that U.S. companies have had this fascination with bringing out new cars each and every year earlier and earlier. Forget the new car model each and every year. We don't need that. We can stop that on an annual basis, and that would be a gigantic cost-savings. And then start working on a retooling process.
BRAND: So it's possible that, let's say GM files for bankruptcy, goes bankrupt, and then, under bankruptcy protection, could do what you say, retool and come out a stronger company, I guess.
Mr. HOROWITZ: Right. Right. Most people need to understand something, that bankruptcy does not mean closing the doors, shutting down, and everything's finished. The problem, though, with bankruptcy is the peripheral damage for many of the companies that are going to get their money, their bills, you know, the steel companies, the plastics companies who have a tremendous amount of money owed to them by the - you know, the GM or Ford or whoever it's going to be. They're going to have a big problem collecting.
BRAND: So what do you think is going to happen?
Mr. HOROWITZ: Well, what's going to happen is, the government is going to be persuaded out of absolute fear. Nobody's going to stick their neck out and just let them fail. We saw what happened with Lehman, which was a much greater problem on the economy than we ever thought it would be. So there's going to be at least, if nothing else, some money given and then handed off to the next administration and say, here's your hot potato. Have a nice time.
BRAND: Andrew Horowitz is president of the investment group Horowitz and Company and author of the book, "The Disciplined Investor." Nice to talk to you.
Mr. HOROWITZ: Thank you so much.