Collision course for American-owned car makers

America's auto makers were very handy in protecting themselves against having tougher fuel efficiency standards. Just this past year as fuel prices spiralled ever upward the feds finally increased the fuel efficiency standards after thirty years of stasis.
Written by Harry Fuller, Contributor

America's auto makers were very handy in protecting themselves against having tougher fuel efficiency standards. Just this past year as fuel prices spiralled ever upward the feds finally increased the fuel efficiency standards after thirty years of stasis. So now those auto makers in America and elsewhere are reaping what they have sown: few people are buying those larger, most profitable (to sell) big vehicles, trucks and SUVs. And Detroit's automakers now account for less than half of the paltry sales figures for cars in the U.S. this year.

Couple that with the credit crunch making it hard to get an auto loan, add a filip of fear because of rising unemployment, and Detroit is whimpering for help. The current lower fuel prices are helping only those with cars already purchased. What's going to happen?

President-elect on Energy and Detroit

Obama gave his first interview since winning the election. Here's what he said on CBS's "Sixty Minutes," first about a loan to the U.S. automakers:

"So my hope is that over the course of the next week, between the White House and Congress, the discussions are shaped around providing assistance but making sure that that assistance is conditioned on labor, management, suppliers, lenders, all the stakeholders coming together with a plan what does a sustainable U.S. auto industry look like? So that we are creating a bridge loan to somewhere as opposed to a bridge loan to nowhere. And that's, I think, what you haven't yet seen. That's something that I think we're gonna have to come up with."

He also said lower gasoline prices do not reduce the need for developing alternatives to fossil fuel. Here's how that went:

"(CBS) Kroft: When the price of oil was at $147 a barrel, there were a lot of spirited and profitable discussions that were held on energy independence. Now you've got the price of oil under $60.

Mr. Obama: Right.

Kroft: Does doing something about energy is it less important now than…

Mr. Obama: It's more important. It may be a little harder politically, but it's more important.

Kroft: Why?

Mr. Obama: Well, because this has been our pattern. We go from shock to trance. You know, oil prices go up, gas prices at the pump go up, everybody goes into a flurry of activity. And then the prices go back down and suddenly we act like it's not important, and we start, you know filling up our SUVs again. And, as a consequence, we never make any progress. It’s part of the addiction, all right. That has to be broken. Now is the time to break it."


Will Detroit get the $25-billion they're asking for? Not clear. It's showdown time. Some Republicans in Congress oppose any such immediate aid. The Bush Administration is opposed to taking any money out of TARP which has been earmarked for financial institutions. The score now stands at Wall Street 700, Detroit 25. There is a law that allows the federal government to loan Detroit 25-billion to retool for more fuel efficient cars. Those cars they didn't want to be forced to build by government mandate, remember?

Meanwhile a leading Democratic Congressman told "Face The Nation" what restrictions he'd put on GM and others if they take a government loan. House Financial Services Chairman Barney Frank (D-Mass.) wants to bar automakers from paying stock dividends or issuing bonuses to executives making more than $200,000 a year. [I can see all the top brass lining up for those $199K salaries.] That would presumably last until they pay back their loan. The bill would also establish a government oversight board that "could veto ventures," Rep. Frank said.

This may all be political grandstanding as it is not clear there are enough Senate votes to pass any kind of loan for the automakers.

Not only are the automakers pleading, so are their suppliers. Hey, don't forget us, we make the batteries, cables, on-board comoputers, windshields, tires, seats, etc. etc. They want their own little loan.


What if they don't get the money? GM claims it will be the first to go. Will they go Chapter 11? How many jobs lost then? Would they then get loans from somewhere to re-structure? Would they stop paying benefits to thousands of retirees? Would their many suppliers go unpaid and also belly up? Who knows. Warren Buffett shows no interest in the Detroit behemoths.

An industry-supported "think tank" in Michigan churned out these scary stats: "Researchers at the Center for Automotive Research (CAR) in Ann Arbor, Michigan, estimate the impact on the U.S. economy would be substantial were all—or even half—of the three Detroit-based automotive manufacturers’ U.S. facilities to cease operations. The immediate shock to the economy would be felt well beyond the Detroit Three companies, negatively impacting the U.S. operations of international manufacturers and suppliers as well. Nearly 3 million jobs would be lost in the first year if there is a 100 percent reduction in Detroit Three U.S. operations.

"Our model estimates that a complete shutdown of Detroit Three U.S. production would have a major impact on the U.S. economy in terms of lost wages, reductions in social security receipts, personal income taxes paid, and an increase in transfer payments,' said Sean McAlinden, CAR chief economist and the study’s leader. 'The government stands to lose on the level of $60 billion in the first year alone, and the three year total is well over $156 billion'.”

GM already has a video on YouTube asking you to support their bailout please. And it quotes all the stats in the above paragraph.

Americans will NOT suddenly stop buying all auto parts or tires or windshield wipers. So not all auto-related businesses would collapse in a year, Ford or no Ford. Our auto fleet might become heavily Japanese and Korean-branded cars but most would be assembled here and we'd all still need parts for whatever car we had.

Whatever happens, this issue will be around as long as cars are being made in Detroit. The first electric-powered vehicle from GM is nearly a year away. And that will not solve the macro-probs of the U.S. owned companies and their unions. If this Congress and the current President don't act soon, the GM question will re-surface as soon as the new Congress hits the steps of Capital Hill in January. It may not be Happy Holidays for the Big Three and the UAW.

Click here to see how our latest poll on the auto industry is doing. The nihilistic tendencies of our tender readers are showing: there's support for both The Big Three and Congress just going away.

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