Automaker woes and bailout switcheroo
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TEXT OF INTERVIEW:
Kai Ryssdal: It’s time to put the weekly wrap on a busy five days. It seems like everything changed from what the Treasury Department’s going to do with the bailout money to whether or not Detroit is going to, or ought to, get any help. Here to help figure it all out are David Leonhardt, he’s columnist for the New York Times. Leigh Gallagher’s with Fortune magazine.
Hello again, guys.
Leigh Gallagher: Hi, Kai.
David Leonhardt: Hi, Kai.
Ryssdal: Let’s start Leigh with you and this very public about-face that Henry Paulson made this week, when he came out and said, “You know what? On this bailout thing, I kinda changed my mind.” Are you worried at all that the plan to save the global economy is in shaky hands?
Gallagher: Well, there’s no doubt it was a huge 180. It started out, we’re gonna sell widgets in Kansas. And the, wait a minute, now we’re gonna sell sheep in Florida. I mean, it was just a complete reversal. I think everybody would be in agreement here that we’re dealing with uncharted waters and there is no road map. But nonetheless, the whole original bailout was sold that not only does it have to be done this way, but it has to be done this way, right now. That just didn’t turn out to be true.
Ryssdal: David, are you scared just a little bit?
Leonhardt: Absolutely. I mean, the main thing that really does not inspire confidence is that they didn’t just not choose this plan originally, they were scornful of it. I mean, the Treasury Department and to some extent the Fed said, “That’s a bad idea.” And weeks later, it’s exactly what they’re doing.
And I think the Bush administration has done some things right in responding to this crisis, but I also think they’ve been behind the curve a lot. And I think it’s good news that we’re gonna have a new team coming in that might be able to establish a little more confidence in the markets.
Ryssdal: Leigh, let me ask you the consumer question. I mean, there are some technical aspects of this mess that seem to be getting better. The credit spreads are narrowing, and there some indication that money is being lent. What about you and me and consumers? How is life being reflected out on Main Street.
Gallagher: You know, you’re right. The commercial paper rates have fallen a little bit. The Libor’s fallen. But in terms of the consumer, things just really seem to be getting worse and worse and worse with every passing day. I mean, we’re seeing retail sales fall off a cliff. We’re seeing chains go bankrupt, like Circuit City this week. There’s going to be more to come. We’re looking at the first December to really have negative sales. People are really scared, people are losing their jobs and it just creates a spiral, really.
Ryssdal: David, let me pick up on that point about jobs. One of the industries lining up for bailout money is Detroit, of course. A lot of people say they should get it; a lot of people say they shouldn’t. Where do you come down?
Leonhardt: Well, I hate this but I think that they probably need to get some amount of aid. And the reason I hate it is that it’s really true that much of Detroit’s problems are of its own making and of the making of its representatives in Congress who thinking they’ve been protecting Detroit have been helping to seal their fate. You know, you see people out there from GM out there now saying, “This isn’t our fault. This is this broader crisis.” But just take a look at last month’s sales. GM’s sales were down 45 percent, 45 percent. But the average was 32 percent. And so, what that tells you is that Detroit has really been doing something wrong, and if the feds, which is us, the taxpayers, are going to get involved, there need to be some really tough conditions put in. And they need to be conditions that acknowledge that these companies are going to get smaller. We just don’t want tens of thousands people thrown out of work right now, which would be a human and an economic problem.
Ryssdal: Leigh, what do you say about that?
Gallagher: Well, I think David makes some really great points, but I do think that we’re looking at the destruction of capital that’s gone on in Detroit has been going on for decades. And to just sort of throw more money after that so they can kind of continue doing what they’ve been doing — that’s a really tough sell, especially when, you know, bankruptcy, it sounds like a terrible option, but there’s a real argument for that being the best solution. It would give these companies time. It would allow them to deal with their dealer network and the other issues that they face. I’m not saying that’s definitely the answer, but there may be a case for it.
Leonhardt: And I don’t think, Kai, that’s necessarily the wrong choice here. Bankruptcy might well be the best choice. The two things we want to avoid here are: one, throwing good money after bad, and two, suddenly having 20,000 auto workers out of work next month.
Ryssdal: All right, you guys, thanks a lot. Leigh Gallagher at Fortune magazine. David Leonhardt at the New York Times.
Leigh Gallagher: Thanks, Kai.
David Leonhardt: Thanks, Kai.
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