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Car makers put on push for more loans

GM, Chrysler & Ford logos

TEXT OF STORY

KAI RYSSDAL: Chief executives from General Motors, Ford and Chrysler were on Capitol Hill today, hats in hand. The car makers are running out of cash, as we've told you. That's made them just about desperate to get their hands on billions in government loans. But what would happen if lawmakers said no?

Marketplace's Jeff Tyler considers the consequences of letting one of the Big Three fail.


Jeff Tyler: Congress has already promised automakers a $25 billion loan. But Dave McCurdy with the Alliance of Automobile Manufacturers says it has strings attached and may come too late.

Dave McCurdy: That money, even though approved by Congress and signed by the president, is yet to flow. So during this short-term liquidity crisis, companies are trying to gain access to that.

Congress is considering a second $25 billion loan that could be available earlier. McCurdy doesn't believe the new administration will allow a major car company to fail.

McCurdy: As President-elect Obama is trying to restore confidence in the financial markets, restore confidence in a turnaround of the economy, having a major bankruptcy of one of the largest manufacturers in the country would be devastating.

Devastating or not, Management Professor Gerald Meyers at the University of Michigan favors industrial Darwinism.

Gerald Meyers: A company should be allowed to fail. But the social costs of doing so need to be considered.

About 600,000 employees work directly for a car company or supplier. Add in those who are indirectly tied to the industry, and we're talking more than 3.5 million jobs.

Jim Hall: To just let a car company go, you know, as a lesson or something, is going to be a price that's too high for the nation to pay.

That's Jim Hall, an auto analyst with 2953 Analytics. He says a bankrupt car company could drag down the entire manufacturing sector. Hall points to 2006 data showing which country makes the most money from exports.

Hall: Not China. Not Japan. Not Britain. It was Germany. And it's because Germany as a nation understood the importance of maintaining manufacturing.

Hall agrees with Dave McCurdy at the trade association on this point.

McCurdy: Allowing one or more manufacturers to collapse will cost taxpayers significantly more in the long run than helping them weather this liquidity crisis.

But even government loans may not ensure survival. Cars sales plunged by more than a third last month.

Ford and GM release corporate earnings tomorrow. Both companies are expected to show billions of dollars in losses
and announce more job cuts as they fight for their lives.

I'm Jeff Tyler for Marketplace.

About the author

Jeff Tyler is a reporter for Marketplace’s Los Angeles bureau, where he reports on issues related to immigration and Latin America.

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