GM Teeters On Bankruptcy; Chrysler Waits In Hope General Motors is expected to file for Chapter 11 bankruptcy shortly, and tens of thousands of auto workers are waiting to hear how many jobs GM plans to shed. Those employees made things a bit easier on GM Friday when the United Auto Workers ratified a cost-cutting deal. This all follows Chrysler's bankruptcy at the end of April. Of the great American auto makers, only Ford is left standing intact.
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GM Teeters On Bankruptcy; Chrysler Waits In Hope

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GM Teeters On Bankruptcy; Chrysler Waits In Hope

GM Teeters On Bankruptcy; Chrysler Waits In Hope

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SCOTT SIMON, host:

Now we turn to General Motors, which is expected to file for Chapter 11 bankruptcy early next week. Tens of thousands of auto workers are waiting to hear how many jobs GM plans to shed. Those employees made things a bit easier for the company Friday when the United Auto Workers ratified a cost cutting deal. This of course all follows Chrysler's bankruptcy at the end of April. Of the great U.S. auto makers, only four is left standing intact.

We are joined now in the studio by WEEKEND EDITION's favorite gearhead, our expert on the economy, Joe Nocera. Joe, nice to see you in person this morning.

Mr. JOE NOCERA (New York Times): Thanks for having me, Scott. I've never been called a gearhead before.

SIMON: Well, all right.

Mr. NOCERA: With good reason.

SIMON: One time only. Of course, turning your fine business eye on the auto industry, can bankruptcy save GM?

Mr. NOCERA: Well, non-bankruptcy certainly is not going to save them, so this is really kind of their last - their last shot at it. You know, they have some things lined up. They have new deals with the United Auto Workers. We will know by 5:00 today. That's the deadline for whether the bondholders will accept the deal they've been offered by the - basically by the federal government. The government's going to wind up owning 70 percent of GM, which may be good but may be terrible, we don't know. And you know, they will emerge from this actually pretty quickly as a smaller company that needs to make fewer cars in order to make money.

This is a place we needed to be at a decade ago, maybe 15 years ago. GM has always been about market share. Now it has to be about profitability. And if it can change that mindset, if it can accept its role as a smaller company that makes a different kind of cars post-bankruptcy, then yeah, maybe this will be the thing that finally saves GM.

SIMON: Any lessons in the Chrysler bankruptcy so far?

Mr. NOCERA: Well, you know, Chrysler - well, first of all, it turns out you can go through bankruptcy quickly with a big company. GM is much more complicated. Second of all - excuse me - you know, Chrysler is going to wind up as basically a division of Fiat. That's how this is going to play out. So it's kind of a different situation from General Motors. And you know, Fiat was trying to become a global company overnight by getting Chrysler and then getting GM's European division, which it did not get, so Chrysler is now kind of in a tough spot because the Fiat strategy is incomplete and it remains to be seen whether Fiat and Chrysler can do better than, for instance, Daimler and Chrysler did. So you know, each of these situations are individualistic.

SIMON: You know, we asked for people to submit questions for you live and there seems to be a theme. So many people ask: why not just let the free market determine their fate? Failure is the best teacher.

Mr. NOCERA: It's a totally legitimate, good question, and there are many people in the country who think that is the right way to go. Two presidents now, Bush and Obama, have basically determined that the country needs the manufacturing base and the jobs that auto supply. And you know, President Obama, very early in his presidency, just got up and said very straightforwardly, we have to have an auto industry, and the only way we're going to have an auto industry is if we intervene. Which is, by the way, true - and certainly in the case of General Motors and Chrysler.

So the government has made it a matter of policy to save the auto companies. Now, you could say it's because of jobs or the UAW. And you can also say, you know, America is a country that basically believes that companies that don't make it should go under. But this seems to be a special case, and I hope they're right.

SIMON: I mean the theory is that old companies that don't perform will go under and...

Mr. NOCERA: Right.

SIMON: ...new companies and the ones still in business learn from their failure and perfect their product.

Mr. NOCERA: Right. And they only problem with that theory, which is generally correct, is that you lose the auto companies and you lose, you know, yet more manufacturing in the United States, a country that's already had trouble holding onto manufacturing jobs.

SIMON: What about the new fuel efficiency standards mandated by the Obama administration? This also going to change the nature of the auto industry?

Mr. NOCERA: Well, there are several things to be said about that. First, it will make it harder for the car companies. I mean it just will, because you know, they're not anywhere close to 39.5 miles per gallon. Ford is in much, much the best position on this because they are ahead on fuel economy.

But then there's the question, Scott, of are people going to buy the cars?

SIMON: Yeah.

Mr. NOCERA: At $4 a gallon the answer is probably yes. At $2 a gallon? Americans have a history of reverting back to big cars as soon as gas prices go down. The administration and the car companies are basically betting the rent on the notion that Americans are ready to buy American-made cars that are fuel efficient.

And I think that is the big question mark about this whole plan, about - is whether Americans will actually buy the cars that the car companies are going to make as a result of being government-owned.

SIMON: Joe, always good to see you in person.

Mr. NOCERA: Very nice to see you, Scott.

SIMON: And you really do wear a Red Sox cap into the studio. Don't you?

(Soundbite of laughter)

Mr. NOCERA: Yes, I do.

SIMON: Joe Nocera writes the Talking Business column for The New York Times.

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