Detroit's Devil

by John M. Curtis
(310) 204-8700

Copyright November 17, 2008
All Rights Reserved.                    

        Washington’s $700 billion bailout euphoria spread to Detroit with the Big-Three automakers, General Motors, Ford and Chrysler, hoping for a piece of the action.  With record losses plunging the Big-Three closer to bankruptcy, the Democratic-led congress tried to fashion a $25 million bailout, hoping to stave off the inevitable at a time of great economic uncertainty.  While the bailout, according to Treasury Secretary Hank Paulson, was intended only for financial institutions, Detroit wants in.  News got better and worse for the Big Three, with the White House reluctant to shift gears and begin bailing out Detroit.  On the brighter side, unconfirmed reports indicate the Bush administration  has decided to only spend half the bailout during the remaining two-and-a-half months of his term, handing the discretion to President-elect Barack Obama and the new Congress.  There’s hope for the Big Three but not until after Jan. 20, 2008.

            Regardless of the economic downturn, the Big Three have their own problems convincing American consumers to buy their goods.  You can’t run a car company only selling to government or auto rental companies.  They also have trouble convincing Wall Street that the Big Three have a viable business model, where well-intentioned concessions to unions have priced them out of the market, at least with regard to profitability.  Many in Congress legitimately worry that $25 billion will only postpone the day of reckoning, where the Big Thee must face the music that their products can’t compete in a global market.  While that’s probably premature, years of corporate inertia have left the Big Three with the wrong priorities, putting too much emphasis on  SUVs and trucks.  GM and Ford divisions in Europe seem to compete quite well with most European brands.

            GM has already started bringing in popular Opel models from Europe and selling them under their Saturn brand.  Despite the recession, those models seem to be doing quite well in the states.  Ford, too, announced recently it intends to bring in its European best-sellers, giving reason for hope.  Before Detroit gets a dime, Washington must have reassurances that there can be no business-as-usual at the Big Three.  Treasury Secretary Paulson caused a big stir last week announcing that he would shift gears and not buy up so-called “toxic assets” or bad debt.  Paulson realized it’s difficult, in not impossible, to assess the government’s ownership of bad debt, preferring instead to buy preferred stock in financial institutions.  While there’s nothing wrong with that, showing inconsistency at a time of upheaval causes more panic.  Since Paulon’s statement, the Dow Jones Industrials has lost 1,000 points.

            Today’s recession could be the last straw for Detroit, no longer a viable business under current contracts and conditions.  American autoworkers probably don’t care whether the Big Three are bought out by European or Japanese automakers.  When Chrysler was sold to Daimler Benz May 7, 1998, it’s was a seamless transition, preserving United Autoworkers’ contacts and benefits.  If it becomes clear that the Big Three won’t survive, then Congress must pressure European and Japanese automakers to begin manufacturing all models here in the states.  Toyota, Mercedes, BMW, Mazda already manufacture some models in the U.S.  GM, Ford and Chrysler could retool to accommodate popular European and Japanese models, preserving employment for American autoworkers and suppliers.  European and Japanese automakers can’t thrive without robust U.S. auto sales 

            No one wants to see Detroit fail.  But U.S. automakers must perform urgent CPR to salvage an industry out-of-touch with the vast majority of consumers seeking stylish fuel-efficient cars.  European divisions of GM and Ford already meet or exceed those expectations   “There’s a high degree of urgency” for federal help said GM Chairman and CEO Rick Wagoner, urging White House and Congress to fork-over $25 billion from the existing bailout coffers.  GM, Ford and Chrysler find themselves caught between a rock and a hard place, begging for money during the current economic crisis.  Wagoner should be reassuring Congress that GM intends to urgently change its paradigm from big SUVs to its stylish and fuel-efficient European models.  White House officials aren’t inclined to hand Detroit bailout money intended for frozen credit markets.  Congress must create a separate program for Detroit.

            President-elect Obama has already signaled he has no intention of allowing Detroit to fail.  While it’s good to show sympathy, it’s not good to throw hard-earned taxpayer dollars down a rat hole.  “For the auto industry to completely collapse would be a disaster in this kind of environment,” said Barack November 16 on CBS’ “60 Minutes,” urging the White House and Congress to fashion urgent bailout legislation specifically designed for the auto industry.  If that doesn’t happen, he’ll have the discretion after Jan. 20 to designate $25 billion from what’s left of the original bailout.  No one wants the U.S. auto industry to drag the economy down into a protracted recession or possible depression.  But the White House and Congress must get tough with the Big Three about making urgent changes.  With or without today’s economic crisis, Detroit must change its ways or close up shop.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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