A strategy for the automakers' loans

A sea of newly imported cars at the Port of Long Beach in Long Beach, Calif.

TEXT OF INTERVIEW

Scott Jagow: Votes are expected today on the carmaker rescue -- $15 billion in loans. But then what?

We're joined by professor David Bailey. He's director of the Birmingham Business School in England. David, what can this $15 billion actually accomplish?

David Bailey: Um, in an economic sense, it buys a little bit of time, in the sense that we're clearly in unprecedented circumstances, given the rates at which car sales are falling in the U.S. and indeed the U.K. So it buys time until the Obama presidency is in place. I think at that point, there will need to be a much deeper examination of what strategies the carmakers are adopting in the United States given the severity of the problems that they face.

Jagow: What do you think would be an effective strategy for Detroit's carmakers at this point?

Bailey: Well, some people have talked about whether a Chapter 11 arrangement would be suitable. I think that wouldn't work in the auto industry, because it would undermine confidence in the brand. But something akin to a Chapter 11, whereby the government supports the industry in restructuring much more fundamentally. And basically, they're going to have to downsize quite dramatically, produce fewer cars, shift operations towards autos which are much more fuel-efficient, hybrid models, a much more slimmed down dealership network, and basically cut costs in order to be able to compete with Japanese rivals.

Jagow: And what about the labor unions? How would they fit in this equation?

Bailey: Well, getting them on side is going to be crucial, because clearly they're a key stakeholder in all of this. They've been making some positive noises about being willing to make some sacrifices, although it's not clear yet how far that will go. But a fundamental problem here has been that the automakers have had their heads in the sand for too long about climate change and the types of changes that they need to make. It was interesting, that I think that Bob Lertz was saying, you know, this isn't our fault, we couldn't have predicted the severity of the downturn. That's true, but equally, they've been ignoring the kind of realities of the types of autos they need to produce.

Jagow: Professor David Bailey at the Birmingham Business School. Thank you.

Bailey: You're welcome.

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