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The bailed out GM vs. the failed one
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KAI RYSSDAL: Henry Paulson clearly had a lot on his mind this morning. His press conference went for more than an hour. He said he thinks, all in all, the government's been moving pretty fast in this crisis. He said he's pretty confident $700 billion should be enough to do what needs to be done. And he said he's not eager to give any of that money to car makers. House Speaker Nancy Pelosi and President-elect Obama feel otherwise.
From New York, Ashley Milne-Tyte reports on what a Detroit bailout might look like if it comes to pass. And what might happen if it didn't.
ASHLEY MILNE-TYTE: U.S. car sales are down about 50 percent over last year.
Michael Robinet is vice president of global vehicle forecasts for CSM Worldwide. He says the government has to bail out the auto industry. He says if GM failed, consider the ripple effects, starting with a supplier of parts to GM.
MICHAEL ROBINET: They would have a problem in the sense that some of their supply to GM helped cover their burden, their fixed costs, and therefore that really questions their ability to continue to supply a Chrysler or a Honda or a Toyota.
And if those automakers have trouble getting supplies it'll make it much tougher to stay in business. Also, he says every town with a GM auto dealership would see its economy suffer.
Jon Blank is a senior industry strategist at Decision Economics. He says there's no good answer.
JON BLANK: What do you do? If you don't bail them out, they disappear or they go into a restructuring that, hard to say how they emerge in a competitive framework where bankruptcy goes on for a year or two.
He says a bailout even for two years would cost about $120 billion.
BLANK: That number, does that sound really repulsive? Well, I mean, we've done basically the same number for AIG, right?
Of course, Blank says, the government could be faced with every other struggling industry asking for the same deal. But he says it's hard to think of having no U.S. car makers left.
In New York, I'm Ashley Milne-Tyte for Marketplace.
"The 15% Solution" to auto crisis
I have a simple approach to the auto crisis -- The federal government should give any one who buys a fuel efficient car from the Big 3 a 15% rebate back on the selling price. This program could have a 1 year time limit.
The total of the rebate dollars might then constitute a loan the auto makers would have to pay back.
If effective, this solution would immediately jump start US auto makers by giving them a huge advantage over the competition while they work on the remaining legacy issues. Auto makers would stay employed and no money would go directly to the car makers.
The feds might also think about underwriting an extended warranty program for this one year period. Again, the total dollars to do so, could constitute a loan to the auto makers
The Idea may be flawed and I am not sure if the numbers above would work, but the conceptual approach might we worth exploring.
Joseph H Hare
23 Del Prete Drive
Hingham, MA 02043
617 755 0898
Why do we insist on allowing the debate to be directed by emotional arguments. If the US autos go into bankruptcy, they aren't going to "disappear" as some have suggested, but will be right sized to match the demand for their products. If there is a void in the market, it will quickly be replaced by more efficiently run firms from around the world that already employ huge numbers of US workers, and make cars that we actually need for the future (smaller and more fuel efficient). Initialy the argument for the bail out of the autos focused on the belief that all related industry jobs would be lost. Then those with vested interest moved on to the argument that people wouldn't buy cars if they felt that the seller wouldn't be around to service their purchase in the future. Firstly, jobs aren't automatically lost in a bankruptcy, that is fear mongering. If people are worried about their car manufacturer not being around in the future, then I would advise that they look to buy from a auto manufacturer that can thrive without government subsidies.
My 15 year old daughter and I got into a heated argument over this story!! I think that a surge Tech electric vehicle would put thousands to work and that this tech could be used in washers and refridgerators, blenders etc. This industry would put thousands to work not to mention the mining needed to produce the metals to make the motors. my daughter thinks that this would tank the world economy dependant on oil. What do you think? Ps how about a pull start laptop or a wind turbine that is 130% efficient? this is the link...http://www.youtube.com/watch?v=jt5z8L4LBJE&feature=related. If it doesn't work, search electric vehicle surge technology, no batteries no gas
Change does not come without sacrifice. The GM Phoenix can arise from the ashes of Chapter 11. Look to Japan post WWII. 'Experts' predict oil will be back to $100 on the next upswing. GM can use the down time to re-design from the bottom up. Would $120 Billion be enough? Who makes QUALITY cars in the USA that run on electricty and/or natural gas? Why can't we? How about heavy trucks and equipment that run on cheap natural gas from the USA (see T. Boone)? How much will the supply infrastructure cost? Possibly deploy GM workers into the supply-infrastructure/retrofit phase and then back to autos/trucks when the plants are ready. Next time make cars for the future as if our lives depend upon on it. May I suggest a national mandate: Left/Passing Lane is for hybrids/low mass or public transit vehicles only and a reduction in the highway speed limits by five mph until we can stop the import of Middle East oil. A small sacrifice considering the cost of the TWO wars in progress.
There has been much said on Marketplace about the possibility of a federal government bailout of the big 3 auto makers. I have a better idea: the United Auto Workers could rescue the auto companies by taking a pay cut. Please tell your listeners what the wages are for UAW assembly line workers in Detroit or other cities in Michigan, and how those wages compare to the average for all hourly paid American workers. My guess is that the auto workers make twice as much as the average hourly wage earner. If the UAW would accept lower wages, then the car companies could operate profitably, the price of their vehicles could be lowered, more could be sold, and more auto workers could keep their jobs without becoming a burden on the American taxpayers. If we bailout the auto companies without a reduction of labor costs, how long will it be before they are back asking for still more subsidies, and when will it ever end?
Also, I would like for you to tell your listeners how much the top executives of the big 3 are paid and how their pay compares to their Japanese counterparts. Bob Nardelli was one of the most over paid people in corporate America when he was CEO of Home Depot, and he might still be in that category today. How about the American auto companies trying a ittle globalization by bring in some Japanese CEOs at Japanese compensation levels and see how that works out?
