Do automakers need more help?
Michigan's congressional delegation is asking the federal government to help Detroit's car makers and lenders. But do the automakers really need more government intervention? Jeremy Hobson reports.
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Bill Radke: Automakers are really hurting. Billionaire Kirk Kerkorian sold off part of his stake in Ford, and other investors followed his lead. Chrysler and GM are talking merger, but financing that deal won't be easy. Yesterday, Michigan's congressional delegation asked the federal government to help Detroit's car makers and lenders. Which brings up that word again: bailout. Marketplace's Jeremy Hobson reports.
Jeremy Hobson: The auto industry already got help from Washington this year in the form of $25 billion in loan guarantees. Still, in an interview with CNBC last week, Chrysler CEO Robert Nardelli was asked straight up: Do the automakers need more?
Robert Nardelli: Well I mean, I think that remains to be seen. We're doing everything we know how to do.
Nardelli wouldn't comment on a possible merger with GM. But Jesse Toprak, an industry analyst at Edmunds.com, says consolidation won't get the auto industry out of its current jam.
Jesse Toprak: Any kind of collaborations in the short term actually costs more money sometimes. Because you have to eliminate dealerships, you have to eliminate jobs, and in the short term that means a lot of cash outflow.
So is more government intervention needed?
David Cole is chairman of the Center for Automotive Research. He says allowing any of the big three to fail would be far worse than propping up the industry with taxpayer dollars.
David Cole: You know, an ounce of prevention is worth a pound of cure.
Cole says job losses in Detroit could cascade to dealerships and suppliers. And he says a major failure would likely lead to more than a million layoffs nationwide. Cole claims cost-cutting and the falling price of oil have put the industry on the threshold of a golden era. If only private investors weren't so scared.
In New York, I'm Jeremy Hobson for Marketplace.
Comments
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From Omaha, NE, 10/23/2008
Mr. Woodward's comment reminded me of the definition of insanity: repeating the same thing over and over with the expectation of a different result. It seems wasteful to commit tax dollars to a system that has enriched executives and sent line workers to the welfare rolls. When will the automakers come up with a dynamic, viable plan to fix what's broken? Must we bail out everyone?
From Boston, MA, 10/23/2008
It occurs to me that US auto makers have painted themselves into a corner. After years of tax credits and handouts - they're still trying to succeed with the same business model, the business model that foreign automakers obsoleted almost 30 years ago.
With every concession to the auto industry over the years you'd think they would have used those advantages to re-tool into competitive shape. Instead they've pocketed the difference, laid off employees, and raided employee pensions - so that they can continue to outrageously reward incompetent executive leadership.
What makes us think that they will behave any differently than they have in the past? Why would they behave any differently than the Airline industry did with it's bail-out a few years back? I suspect they'll lay-off a large portion of the workforce and make sure to give all their executives a 5% - 10% raise.
From McKinney, TX, 10/23/2008
The US automakers are between a rock and a hard place. So many people have lost good paying jobs and replaced them with low paying ones, that they can no longer afford new cars. We are getting all the miles we can out of our old ones. The 2 cars in my household have 145,000 and 230,000 miles on them. If the big 3 bring the prices down to affordable levels it will most likely be by closing US factories and loosing those million USA jobs. That will make things worse. Financing is another problem. The market for new cars has shifted to people on the edge who no longer have perfect credit, so they don't qualify for the promotional financing advertised on TV. (Fine print "This financing only available to those who don't need it") And the low interest rates are only offered on the more expensive cars, or the ones that cost a lot to drive. The real challenge is to bring out cars priced to the new market, plug in hybrids priced under $16,000, without unemploying America worse than it is now, and with non-exploitive affordable financing available to those who need it to afford a car. If we do help car companies, the help must be conditional on meeting the affordability and energy challenges while keeping Americans employed with living level incomes.
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