A strategy for the automakers' loans
The proposed $15 billion loan for the auto industry is expected to go to vote today. But what can the money actually accomplish if approved? Scott Jagow asks David Bailey from the Birmingham Business School in England.
A sea of newly imported cars at the Port of Long Beach in Long Beach, Calif. (David McNew/Getty Images)
More on Auto Industry, America's Financial Crisis
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.
Comments
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From Detroit, MI, 12/10/2008
Utterly amazing! Only now are we seeing how truly out of touch and ignorant folks like Professor David Bailey are when it comes to the automotive sector. Up until the gas crisis, the Big 3 were building exactly what the public wanted. Why on earth do you think the likes of Toyota, Honda and Nissan were trying to muscle in on the full size truck and SUV market?
The only reason the Government is giving the automakers such a hard time is because the majority of its member think they know what a car is and how it’s manufactured. The $700 billion bailout for Wall St. was passed in a heartbeat with very little objection because no one in the Government really understood the theories behind computer algorithms and how credit default swaps work.
Professor Bailey, it’s the bicycle shed syndrome all over again. You of all people should understand that.
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