Car makers put on push for more loans
Chief executives from General Motors, Ford and Chrysler are on Capitol Hill desperately seeking federal loans. What would happen if lawmakers said no? Jeff Tyler reports on the issues facing the companies as they fight for their lives.
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More on The Economy, Auto Industry, Politics, Fed. Budget/Govt. Spending, America's Financial Crisis
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.
Comments
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From texas, CA, 11/15/2008
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From Mounds View, MN, 11/10/2008
I keep waiting for someone to point out the obvious thing that should also be addressed: the enormous salaries of the CEOs and board members. I would like a stipulation to accompany any loans from the government--a stipulation that says something like the top salary in a business seeking a government loan will be no more than 10 - 20 times the salary of the lowest paid worker. Those enormous salaries have to be hurting the company and its ability to innovate, get through tough times, keep workers employed, market the product more competitively, provide health care, etc. It was like there was a competition to see who could pay their CEO the most, using the excuse they had to pay that much to seek the best. What a bunch of hooey. Lets get back to reality! Millions of dollars a year? No one is worth that much.
From Charlotte, NC, 11/07/2008
@Deborah McCauley-Ellis
There are a number of points you made that I'd like to comment on:
First, the government can only control how much tax they assess on gasoline. They can't control the supply nor the demand. As a consequence, if they try to legislate price lower, we will end up with shortages. Shortages have not happened except recently in N. Carolina where the government forced a lower price through anti-gouging laws. But that "low" price was roughly $4/gal. I'd be interested in hearing how you think the government forced prices lower.
Second, it's true that Wall Street produces no physical thing. But it's false to assume that means that Wall Street produces nothing. If you were to loan me money at a given interest rate, the interest is my compensation to you for your willingness to trust me to pay you back, and forgo spending that money yourself.
If I suddenly don't pay you back, you have lost something, even though no physical thing was produced.
As far as being able to choose an American made car or not. Personally, I want to choose the best built car for the least amount of money. By subsidizing American producers, the American tax payer is paying for a car through taxes and the sticker price. Personally, I'd much rather see any company that is unable to compete, go out of business. If there really is a market for American made cars then maybe what needs to happen is that the big 3 who are dominating that market need to die so that some new fresh ideas can take hold.
I don't know. But what I am fairly confident of is this: it very much *is* a bailout in exactly the same way that the Wall Street bailout was one. Neither are good ideas.
From Warren, MI, 11/06/2008
I think it's interesting, all the questioning of whether we should let the American auto companies fail because their apparent poor management and judgement calls. First of all, how can these companies make accurate predictions about consumer want when the government, in the past, has artificially lowered the price of gas, making consumers think they could afford gas guzzling SUV's. Chrysler tried to address the issue of gas consumption during the 1970's gas shortage, remember the K car? And they practically went bankrupt for it. When all around the world, gas prices were rising, in the US, gas was cheap, and the economy was good. Why wouldn't a person earning a good wage want a roomy vehicle with all the luxuries? It was opulent but all their friends had one.
Now the government is all about the oil companies making as much money as possible, with the excuse that it's just our capitalist economy at work. What a bunch of bull! It takes a car company at least 2 years to get a vehicle from the concept stage to production. The car companies cannot change on the whim of our government. This is not an issue of consumer demand alone.
And besides, government was happy to bail out Wall Street, an entity that doesn't create anything.
People may not be buying cars right this minute. But eventually, they will need to. Cars wear out. Won't it be sad if they cannot choose an American made vehicle because our government was too greedy and short sited to see the obvious, that the world cannot buy if you have nothing to sell. This has nothing to do with a "bail out". The automobile industry is the backbone of the manufacturing sector or our economy. With it's fall comes the fall of America.
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