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Dissecting the auto industry pileup

Marketplace Staff Dec 30, 2008

Dissecting the auto industry pileup

Marketplace Staff Dec 30, 2008


Kai Ryssdal: If by some chance you haven’t heard, the American automobile industry’s in a whole mess of trouble. It’s been struggling for years. But somehow things came to a head in just the last couple of months. Marketplace’s Alisa Roth has spent a lot of time coverning Detroit for us this year. Hi, Alisa.

Alisa Roth: Hi, Kai.

Ryssdal: All right, so today’s GMAC news aside, catch us up on this crazy year Detroit’s had.

Roth: Well, the big news is obviously more money for GM and Chrysler. They finally got $17.4 billion from the Treasury rescue fund. Ford does say it has enough cash for now, but Kirk Kerkorian did sell off the rest of his Ford shares yesterday. The other big news was that this might have been the year that ended SUVs and trucks. The record-high gas prices this summer really did in that business, and car sales generally are way down. And I think we can probably expect them to be at least that bad, if not worse, in the coming year.

Ryssdal: Well, you mentioned Ford, and it said it’s doing OK. What about GM and Chrysler?

Roth: Well, they both have until March to come up with solid plans for how they will get profitable. That doesn’t mean they have to be profitable by the end of March, but they do have to show how they will get there. There have been rumors on and off for months now that there could be a merger that would be GM buying Chrysler, but it’s quite unclear whether that would actually happen, and it’s still a little unclear to me at least, who would gain what from it.

Ryssdal: Define solid plans, though. Didn’t they get sent away by Congress to come up with a plan, and they came back, and now they have to do another plan?

Roth: Yeah. I mean, they have plans. They showed Congress their plans. But they really have to show very specific ideas of how they’re going to restructure their companies in ways that can be sustained.

Ryssdal: What about the people who will be doing that building, the members of the United Auto Workers’ union? Ron Gettelfinger, the head of the union, was at that long green table with the CEOs.

Roth: Their part in this has been really mixed. I mean, I think in the last, let’s say couple of years, all three parties — that is, the Detroit Three, the UAW and the workers — have kind of realized that they are all on the same side of these negotiations. That basically their job, collectively, is to make sure that these companies don’t go under. Because if anyone goes under, they’re all going to be in trouble. That said, Ron Gettelfinger has publicly said we’re not making any concessions, but earlier this month there was a big meeting in Detroit, and the UAW actually agreed to a couple of big changes, including discussing their current contracts, allowing the companies to delay their payments to the big health-care funds, and getting rid of the jobs bank. And I think we can already expect that there will be more concessions ahead. Among other things, the loans from the government require that they get their pay rates down to roughly what the foreign carmakers in the U.S. are paying.

Ryssdal: You know, Alisa, as much as we’ve been trying to figure out what Wall Street is going to look like in the months and years to come, so are we trying to figure out what Detroit and the U.S. auto industry is going to look like. What do you think?

Roth: I think that the next three months are going to be very, very informative and crucial. Obviously, it’s going to depend, in part, on what President-elect Obama and his administration decide are acceptable levels of profitability and how much more help the companies might need. I think what is clear is that the auto industry both here and abroad is never going to be the same. I think there are going to have to be changes to the products — that is, more fuel efficient cars, cars that people are more interested in buying, and changes to the business model. I think the really big question here is, is this finally, finally the end of manufacturing in the U.S.? And if it is, where does that leave semi-skilled or unskilled workers? You graduate from high school and what are your options? At this point, they are few and far between.

Ryssdal: Answers to all those questions and more in the New Year. Marketplace’s Alisa Roth for us from New York. Thanks, Alisa.

Roth: You’re welcome, Kai.

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