Big Three Loan May Come With Conditions If Congress approves a loan for automakers to get them through this tough financial period, it will likely come with lots of conditions. Paul Ingrassia, who won a Pulitzer Prize for his reporting on General Motors, discusses the situation.
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Big Three Loan May Come With Conditions

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Big Three Loan May Come With Conditions

Big Three Loan May Come With Conditions

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ALX COHEN, host:

More on the Big Three. Senator Chris Dodd says Detroit needs some big personnel changes. Earlier, I spoke with Paul Ingrassia, who writes about the automotive industry for the Wall Street Journal. He says Senator Dodd is calling for a change of leadership at General Motors.

Mr. PAUL INGRASSIA (Automotive Industry Columnist, Wall Street Journal): GM is really at the epicenter of this crisis, and that's a direct quote from one of the best auto analysts on Wall Street, Rod Lache of Deutsche Bank. So I think that he was typically talking about Rick Wagoner, the chairman and CEO of GM.

COHEN: And how has GM responded to that?

Mr. INGRASSIA: Basically, the company has put out a statement saying they appreciate Senator Dodd's comments, but that, you know, all the employees and the dealers and the board and the parts suppliers, all the constituencies are really behind Mr. Wagoner in this, which I don't think it's quite unanimous, to be honest with you, but that's what their statement was.

COHEN: And with this talk of federal oversight, how do you think that would affect the fuel efficiency standards for the Big Three automakers?

Mr. INGRASSIA: Well, you know, I'm not sure how it will affect fuel efficiency standards. Let me just say this. The fuel efficiency laws, corporate average fuel economy, or CAFE for short, frankly, are sort of a sham. They force car companies to build fuel-efficient cars on which they don't make a profits, so they can sell the big SUVs on which they do make profits.

I'm not against fuel-efficient cars, but the point is is that the regulatory approach really implies a sort of a free lunch that you can just, shall we say, legislate fuel efficiency, when really, the market will take care of that. So, if Congress is going to be intellectually honest about this, what it really needs to do is start raising gasoline prices, so that gas prices will be high, and the market will take care of the move toward fuel efficiency and green house emissions and that sort of thing.

It's very interesting that last month, when gasoline prices sharply nose-dived, the biggest sales increases in the auto industry was a bad month for the whole industry, but the biggest sales increases came from SUVs, the Toyota Sequoia, the Honda Pilot, and the BMW X5 and X6. Meanwhile, small car sales dropped even more than the average.

COHEN: Today, General Motors released an ad, an apology of sorts. Where did this run, and what affect do you think it might have?

Mr. INGRASSIA: Well, I believe it ran in Automotive News. I'm not sure where else it ran. And I think what the company is trying to do is adopt a tone of, you know, humility and modesty and say, look, we know we've messed up in the past and that sort of thing. It's always a risky kind of thing to do. On the other hand, you know, they might get points from the public or from the politicians for honesty.

I mean, there's two issues here. One is how they're asking for what they're seeking. So I think some sort of attitude of humility here I think is appropriate. But the other issue, and probably the more important issue, is just what they're asking for. So I think, frankly, to ask for an open-ended blank check under some sort of a nebulous oversight board, even if they're asking in a humble tone, it doesn't really get the job done.

The danger here is that this is going to become a never-ending, you know, government-subsidized machine, if you will. The other danger is that conditions will be imposed will be sort of phony symbolic gestures, such as limits on executive pay, which in and of themselves are not going to do anything to revive Detroit.

COHEN: Paul Ingrassia writes about the automotive industry for the Wall Street Journal. Thank you.

Mr. INGRASSIA: Thank you, Alex.

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