Bailout for Big 3 hits Senate jam
Senate Republicans put the auto industry bailout plan on hold, so where do the Big Three go from here? Alisa Roth reports on the different paths the automakers can travel.
Chevrolet cars at a dealership in Chicago. (Scott Olson/Getty Images)
More on Auto Industry, Politics, America's Financial Crisis
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Kai Ryssdal: It never was a sure thing, this bailout for Detroit. Today Senator McConnell and his colleagues made it pretty clear the only sure thing is that the deal the White House and Congressional Democrats agreed to is not happening. Which leaves us with these facts. General Motors says it doesn't have enough cash to last until New Years. Chrysler's almost as bad off. Ford says it'll need help if one of the others goes under. So this seems like a pretty good point to ask, what happens next? Marketplace's Alisa Roth has more.
Alisa Roth: The real question is how much longer the Detroit Three can hang on. And how many more ways they can think of to cut costs. Until presumably, the Obama administration comes in and bails them out. Bruce Belzowski is at the University of Michigan's Transportation Research Institute. He says the timing's actually pretty good, as these things go. Since all three are getting ready for extended holiday shutdowns anyway. That'll save some money. After that, he says, the first step would be to get rid of research and development and focus on the here and now.
Bruce Belzowski: To make sure that you could get the product that you have available and already developed out to the dealers.
That means you keep plants running, but only very selectively. There is another Plan B, as in bankruptcy. But Belzowski thinks that could be risky. Since they might never get out of it. Right now, though, the bigger problem is that all the carmakers in North America -- including Toyota and Honda -- use many of the same suppliers.
Belzowski: If one of the major manufacturers goes out, some of its major suppliers go out as well. And then you start having some of the dealers go out because they no longer have vehicles to sell and now you've got a domino effect.
And once the dealers get involved, the trouble will spread well beyond Detroit. Ron Harbour is an analyst with the consulting firm Oliver Wyman. He points out there is another possible solution.
Ron Harbour: All along, President Bush has had the ability to go ahead and sign this thing and get it done but he's been unwilling to do that.
If the President doesn't change his mind, and no money comes through, the Detroit Three will just have to sit tight and hope they can make it to the Obama administration.
In New York, I'm Alisa Roth for Marketplace.
Comments
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From NJ, 12/12/2008
I'm sure they would rather not have to cut R&D, but the truth is their hands are tied. They can't cut labor without incurring huge upfront costs which they don't have the cash on hand for. Similarly, they can't cut management due to the severance provisions that most of the white collar workforce has. That pretty much makes R&D the easiest place to cut spending, which I agree is a terrible move. Then again, given the current condition of the Big 3 and their history of making terrible moves I would have been surprised if they had chosen to do anything else.
From Durham, NC, 12/12/2008
Now that the government bailout is dead, why don't the automakers consider a loan from the very organizations that they help keep in business and have made the most profits of any U.S. companies: The oil industry. I'm sure that 1% of the quarterly profit from any one of the oil companies (especially Exxon) would be a drop in the bucket. Plus, no government oversight. Just a thought.
From East Brunswick, NJ, 12/12/2008
I believe that the CEOs and top tier management at the financial companies, auto companies, and any other firms requesting a bailout should pay a penalty for that bailout. Why? Because in each case, they let their investors, customers, and consumers down and not just in ordinary ways, but in catastrophic ways. So the penalty to them should be equally catastrophic in the name of justice, because if they didn't know what their management actions would portend, they should have known. Here, I think, is an appropriate penalty, for all of them:
Have a forensic accountant come in and seize every single personal asset each one has: retirement monies, investments, cars, boats, homes, jewelry, wine cellars, furs, heirlooms, everthing. The goal should be that they are all left with just the clothes on their backs, as if they were refugees arriving in this country fleeing a dictatorship. Then, give each one an annual salary of the lowest paid person in each of their firms, to be doled out by the courts to make sure there is no finageling. Then, make each one rent, not own, a 500 square foot studio apartment in a lower middle-class neighborhood like Jackson Heights, Queens, NY or even Kew Gardens, Queens (that is a little better). They would not be allowed to hire drivers or rent cars. To get around, they have to walk, ride buses, and take subways. And, they are not allowed to move from that studio apartment without express permission of the court, and they cannot sleep away from that studio for more than one week per year, to prevent them from moving in with friends or staying in a hotel. And if they're married and/or have kids or inlaws or anyone else that lives with them, they all will have to live in that same studio, with him. And, as I said, their salary will be that of the lowest paid person in their firms, and they will have no other resources including no retirement monies, so if they work again and then retire, whenever that may be, they will have to rely strictly on social security.
If they met those terms, that, to me, would be sufficient penalty for what they caused the world economy, and I would support their firms getting the bailout money.
Priscilla Stanton
From NYC, NY, 12/11/2008
Is it me, or is cutting R&D a suicidal move? If people aren't buying the Big Three's cars now, what will convince them to buy these cars when they haven't been updated down the road?
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