December 18th, 2008
06:26 PM GMT
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NEW YORK – Here we go again. A major U.S. company, actually two, are on the verge of collapse. People are concerned about what kind of ripple effect that might have on the broader U.S. economy and yet, the Bush Administration dithers. Well, that might be too strong a word. They are probably crunching numbers, calling in experts and hotly debating what to do over autos. But so far, they are not acting. And the companies are quickly running out of money.

Late Wednesday, Chrysler announced it will shut down production at all plants for a month. GM and Ford have also said they will extend their usual seasonal shut-down. GM and Chrysler made it clear in testimony earlier this month, they can not survive much past the end of the year without a financial lifeline.

The Bush Administration has said a "disorderly bankruptcy" would be harmful to the economy and is not an option. But it feels like we are getting awfully close to that. GM has denied news reports that it is in merger talks with Chrysler, but at this rate it is hard to see how all three carmakers are going to survive this crisis in the current form.

The idea of naming a car czar to oversee the restructuring process also seems to have stalled. The New York Times is reporting that Treasury Secretary Henry Paulson has effectively taken on the role of "auto czar." That's alarming to many who are critical of his handling of the bank bailout.

Our CNNMoney.com folks report that Speaker of the House Nancy Pelosi wants Paul Volker to take over the role. A former Fed chairman and advisor to President-elect Obama, Volker knows a lot of monetary policy, but few believe he has the corporate experience or turn-around skills needed to make a real difference to the auto industry.

The White House says they are getting close to announcing some kind of plan, but I wonder ... have we passed the point of no return? Is it too late to save all three of these car companies?

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Filed under: BusinessUnited States


soundoff (12 Responses)
  1. Rod

    Never say never. Here's a Japanese idea for stimulating auto demand. The Japanese levy higher road taxes on vehicles the older the car gets. This provides the incentive to replace your vehicles. The downside; The environmental damage from recycling the old cars. They also ticket vehicles for breaking down on the road. Incentive for Detroit to make more reliable vehicles. I have my GM in the shop today for the third time in three years for the same problem. The only foriegn vehicle I've owned is a Toyota that I bought while I was stationed in Japan. For now I'll still buy American as long as not-so-free trade allows me to.

    December 18, 2008 at 8:14 pm |
  2. Pat

    If the goverment will help the auto companies, it should be help that will last for the long term. That means enough funding should be provided to these companies to get them back on their feet again and ready and poised to be a serious player in the industry when the world economy starts to improve. That being said, these companies will have to be on a level playing field with their competitors. This will have to include serious or total cuts of pensions and health care benefits that it owes.

    America will have to pay for saving jobs and this industry. Its just involves a lot of sacrifice to do so. Are Americans willing to do this?

    December 18, 2008 at 10:37 pm |
  3. Mary from Boca Raton

    Mr. Paulson should be fired! It seems like he thinks he has full power to dispense the bailout funds as he sees fit and not how the congress directed them to be spent. He does not have this power and should be investigated by the Justice Dept. for his wrongdoing in his failure to follow congress’ direction. If it wasn’t criminal, it should be, because it is our (taxpayer) money.

    Isn’t it interesting that the cutbacks always start and the bottom and work their way up instead of starting at the top and working their way down. The taxpayer gets the shaft again and again.

    The auto companies have known for over 2 years that the more fuel efficient cars from Japan were “kicking their butts” in sales, but failed to make any changes to their automobiles to make them more fuel efficient and competative. They have known since the forming ot OPEC that we needed to reduce our dependency on foreigh oil, but they continued to produce gas hogs and have been fighting tooth and nail to fend off any new fuel efficient standards. Not only should their CEOs, CFOs and other top executives be fired, they should be held financially responsible for their company’s failure. The unions should also bear some of the responsibility since they have insisted on outrageous concessions from the companies.

    GM is now stopping the construction of the new plant that would produce their electric car. How stupid is that? The one car that could put them back in the black and they have tossed it out (again).

    The auto companies don’t deserve one cent in bailout loans or monies. Let the auto companies go to the oil companies for their bailout. They have been married to them for years and held back on every attempt to produce more efficient automobiles. They don’t deserve any taxpayer money.

    December 19, 2008 at 12:07 am |
  4. RJ in Washington

    I believe with a great deal of “change” and very rapidly they can be saved.

    Here is my to do list that will get the change started.

    1. Stop all consumer incentives.
    2. Stop all sales to rental car companies.
    3. Stop all production for 60 days and evaluate demand at end of 60 days.
    4. Institute salesperson incentive program of $500.00 per new unit sold in next 60 days.
    5. All production employees go on indefinite layoff until production resumes; unpaid let them apply for unemployment.
    6. Reduce all other staff to only bare essential necessary for 60 days operation; all layoffs are unpaid and let them apply for unemployment.
    7. Match Dealer dollar for dollar in coop advertising until average dealer inventory is 60 days or less. Stipulate any price ads must not be below MSRP and must contain at least 5 features of any model highlighted.
    8. Institute maximum salary for any employee of $ 250,000.00 until the company has at least four consecutive profitable quarters.
    9. Any and all bonuses will be paid quarterly and subject to profitability and collectively not to exceed 10% of that quarter’s profits.
    10. Resume production model by model only when all dealer average inventory days is 60 days or less. Only dealers with 60 days or less of that model may order units.
    11. Once production resumes, insure all products have a minimum 12% mark-up from dealer cost to MSRP.
    12. Stop all advertising, marketing, sponsorships except as listed above in item # 7.
    (Added 12-17-2008 after reading Dodge intends to continue NASCAR sponsorship)

    December 19, 2008 at 3:38 am |
  5. Phil

    The auto workers adds to their problems with their union not accepting to lower their wages to the level of the rest of the world. This, plus the greedy CEOs brought it on themselves. If it takes bankruptcy to wake up the Auto Workers, then so be it.

    All the tax payers who lost their homes and their livelihood because of the greedy CEOs have not received help from the Government, why should these bankers and auto workers get help?

    If they get help and not the tax payers, then why not give Madoff help. He is another greedy CEO and another thief in a big way.

    December 19, 2008 at 7:13 am |
  6. Con

    People could see for the last couple of years that these companies were on the wrong course, producing gas guzzlers and ignoring the reality of high oil prices, and changing eco trends, so I dont see why they should not be punished for being on the wrong course.
    The had plenty and plenty of options in the past to change, but always had the same lame excuses:- smaller cars dont make enough profit, Americans want/need big cars. Well if there is no way to make a profit from small cars why are so many small cars made around the world. And face it, Americans are given the propaganda of having to have everything bigger, its not the Americans who decide big cars are for them, its the advertisers and marketers who decide for them, including the car companies.
    Letting these companies fail now will be the best thing to do. If you give them billions now what will they do? Exactly the same as before, and they will end up bankrupt later rather than sooner. So its actually cheaper for the US taxpayer to let them fail now rather than later.
    At least if they fail now, some new inspiring ideas and car firms will spring out of alternative brains, and cars will hit the market which make sense and can make a profit. Isnt that what the USA is all about?

    December 19, 2008 at 7:29 am |
  7. Onno Frowein

    The CEO's of the Big Three automakers were right about one thing nobody is going to buy their cars or suppliers are going to supply the necessary parts.when under Chapter 11. That's the end of the road. For Chrysler's owners its a simple tax write-off for GM or Ford it's a matter of pride. Regretfully, the CEO's have not shown any of that either, they are no Lee Iacocca's.

    I have lived in the USA from 1972 – 1997 and I never owned an American made car. Why, when travelling in the USA I rented an American made car which most of the time had poor mileage and although only a couple of month old they showed already many problems. Conclusion they were poorly made although the design was attractive. Nader's 'Unsafe at Any Speed' did the rest. So the handwriting was on the wall but CEO's ignored the downturn until the present credit crisis with sales down 40+% and all the previous troubles came all together to the surface. But this is only a poor excuse by it's incompetent management for the past 40 years. Henry Ford's ' small cars, small profits' has now become a nail on the coffin of the American automakers.
    Is ther no way back? Not in the present form since management seems not to be able to manage this size of operations with its strong unionized factories and high medical/pension expenses. Something foreign car manufacturers in the Southern States do not have. But again the Big Three ignored these developments in the hope American consumers would continue to buy their gasguzzlers. Wrong again when gas prices reached $ 4,40 a gallon.
    What about Murphy's Law for the Big Three. Considering the above mentioned I wonder whether these large companies never had a strategic plan with different scenario's. I understand it takes a long time to develop a new model but that's why CEO's are paid to take risks and that apparently did not happen either. Is this the end of American ingenuity? I hope not and I believe the only chance that the Big Three could survive is by splitting it up along their present divisions. Maybe Obama's team has an answer when in office.
    Bankruptcy of the Big Three with all its workers is a sad day in American history but the same I thought when Pan Am, Trans World Airlines went under or when ATT, with the best telephone service in the World, was broken up. So maybe, when the Big Three are broken up there will be light at the end of the tunnel.

    December 19, 2008 at 9:37 am |
  8. Henry

    Saving these automakers are a financial (risk) to the U.S. taxpayers.What is a financial (risk)?The Iraq war is a financial (risk).So if i have to choose between the two.I choose Detroit Ms. Lake!

    December 19, 2008 at 11:29 am |
  9. Manuel Vazquez

    If the government { a self explanitory word } would only allow a certain percentage of markup above cost for everything sold in the united states we would not have this runaway inflation. How is a worker making 10.00 an hour which is maybe 4.00 above minimum wage expected to pay for a service call costing 40 to 50 dollars per hour? How is a person making 10.00 an hour which is maybe 4.00 above minimum wage expected to get ahead when they have to give at least 25% of their income to the government to squander? Why does the government allow employers to keep employees wages below poverty levels? Do federal employees require greater income than the general public? Does the cost of living only increase for government workers? I say call the government into a performance evaluation and tell them if we do not start seeing some improvement in the prosperity of its citizens we will either have to cut their pay or let them go. We will not be able recommend them for rehire.

    December 19, 2008 at 12:53 pm |
  10. Phil

    Cmon Maggie – you've been supporting the Democratrs for so long, your getting to like them. The Union was directed to lower the salaries of the workers down to the rest of the world, but they refused. Nancy Pelosi is a sick democrat – nothing upstairs. Get the auto CEOs to give back some of the cash they have stolen in overpaid salaries and bonuses, and the auto industry will be back in business. How about helping the taxpayers who are footing the bills the democrats to reimburse the failing thiefs. They are the ones who deserve to be bailed out. No workers, no taxes......

    December 19, 2008 at 1:23 pm |
  11. Robert

    I just endured CNN's live "coverage" after Bush announced his plan for a car industry bailout. All of your assembled geniuses totally missed the crux of the story. They talked about the various conditions that Bush is attaching to the loans, etc., without uttering a single word about the fact that we'll have a different president and Congress in three months. It took the Detroit bureau chief to set everyone else straight ... that Bush is just punting to Obama, and the people who have drawn up these conditions will not be around in three months to enforce them. The Detroit bureau chief was right ... we'll all be back in March to talk about what needs to be done next. Hooray for the bureau chief, but again, for 15 minutes or more, your geniuses at the White House, on Wall Street and in the anchor chair were oblivious to this simple fact. It made your network sound ridiculous.

    December 19, 2008 at 2:48 pm |
  12. Ted

    i just finished watching the head of the UAW speak on his disapproval of the government's terms for the use of the bailout money given to the Big Three. He seems to be willing to put jobs that the union workers have at further risk just to win more concessions from the government. He does not seem to understand that when the Big Three went to the government for assistance that pretty much negated any leverage the UAW has in this matter. The government made it quite clear that the Big Three needs to restructure or reinvent themselves to remain globally competitive. The only other option is bankruptcy, which means they would have to restructure anyway and the UAW would lose any concession gained because of the bankruptcy. I believe in helping the hard working people of this country, but is he really helping them or hurting them?

    P.S Look at the polls, most Americans surveyed were against the bailout and in favor of bankruptcy!

    December 26, 2008 at 10:09 pm |

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