TOPICS > Economy

Automakers Idle Plants While Awaiting Federal Action

December 18, 2008 at 6:25 PM EDT
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Faced with historically slow sales, the big three auto companies have made more cost-cutting moves, including temporarily shuttering plants, in an attempt to stay afloat while the government debates an auto industry aid package. A reporter in Detroit provides an update.

JIM LEHRER: Next, that crisis still facing Detroit automakers. President Bush has been weighing whether to use federal money and credit to help the automakers avoid bankruptcy. He was asked about those negotiations today.

U.S. PRESIDENT GEORGE W. BUSH: The autos obviously are very fragile, and I’ve laid out a couple of principles. One, I am worried about a disorderly bankruptcy and what it would do to the psychology and the markets. They’re beginning to — you know, to thaw, but there’s still a lot of uncertainty.

I’m also worried about putting good money after bad, that means whether or not these autos will become viable in the future.

And, frankly, there’s one other consideration, and that is, I feel an obligation to my successor. I’ve thought about what it would be like for me to become president during this period.

I have an — I believe that good policy is not to dump him a major catastrophe in his first day of office. So those are some of the considerations that we’re weighing.

JIM LEHRER: Judy Woodruff picks up the story from there.

JUDY WOODRUFF: Even as the president is deciding what to do about financial aid, the Detroit automakers announced yesterday an extension of their seasonal production shutdowns.

To give us a sense of where things stand this evening, we turn to David Shepardson. He’s a Washington and automotive correspondent for the Detroit News.

David, thank you for coming here.

The White House said today there’s very close to a decision. What do you know right now about where things stand?

DAVID SHEPARDSON, The Detroit News: Well, the most likely scenario right now is that they’re going to provide short-term aid to both G.M. and Chrysler to survive into March and then basically give President-elect Obama and the Democratic Congress the option of deciding, do they add more aid? And what strict conditions do they put on the rest of the aid?

JUDY WOODRUFF: So short-term aid in the form of what and how?

DAVID SHEPARDSON: Well, they’ve got $15 billion left in the first half of the TARP. And they can use that money…

JUDY WOODRUFF: That’s the Wall Street package.

DAVID SHEPARDSON: Right, that’s the Wall Street bailout package. And they can use that money to basically help them pay their bills while they get through, you know, the remaining two, three months, as production, you know, continues to decline.

The option of 'orderly bankruptcy'

JUDY WOODRUFF: Now, we also saw, David -- and you've been reporting on this -- that they're talking about an orderly bankruptcy, managed bankruptcy. Tell us about that. How would that work? And is that something that's seriously under consideration?

DAVID SHEPARDSON: I mean, it's never been taken off the table. Clearly, the main goal of the White House is to prevent a catastrophe from hurting an already very weak economy.

And if G.M. or Chrysler were to go bankrupt and liquidate, it would have enormous impacts, you know, talking about dozens of suppliers, you know, billions of dollars in pension costs, and just an enormous burden.

So a managed bankruptcy would be the government providing essentially debtor-in-possession financing, allowing the companies to reorganize under a bankruptcy trustee, and the government would provide the funds, or at least guarantee the funds that banks would normally provide in a bankruptcy.

JUDY WOODRUFF: And is it your sense that they're looking seriously at that?

DAVID SHEPARDSON: Well, that's never been the first option of Treasury, because that would be such a dramatic step. It would tie the hands of the new president and the new Congress.

You know, as the president said, he wants to hand off this problem to his successor, but in some better form.

And, clearly, if you go down the bankruptcy road, there's a lot of unknowns, and it would certainly have a huge downside risk, whereas you give them money, the companies do have assets, especially G.M., that they can pledge against those assets, you know, to guarantee that the taxpayers would have some, you know, recovery if they did go bankrupt.

JUDY WOODRUFF: And if it is out of the TARP money, the Wall Street bailout money, it'd be in the form of loans?

DAVID SHEPARDSON: Right. Most likely short-term loans to both G.M. and Chrysler, because they have a huge number of bills coming due in early January to their suppliers.

Ensuring companies are viable

JUDY WOODRUFF: But if that's what they're leaning toward doing, why is it taking so long to figure this out?

DAVID SHEPARDSON: Well, look, the Senate Republicans last Thursday night scuttled the package. They said the UAW hadn't made enough concessions. And since then, the Treasury has been carefully going through the books.

And what they want to ensure is that these companies can be viable, that they have plans to be profitable. I mean, G.M. has lost $70 billion since 2004. And Chrysler has lost a huge amount of money, as well.

So they've got to stop the bleeding. And they've got to have a plan to get smaller, and leaner, and more efficient, especially since next year could be a much worse year for auto sales. I mean, they were down 37 percent in November, and they're looking probably as bad this month.

JUDY WOODRUFF: And your sense is that there could be an announcement as early as...

DAVID SHEPARDSON: Potentially as early as tomorrow. I mean, you've got to remember, these Treasury folks have been working long hours. They want to go home for the holidays. Nobody wants to be here December 24th still talking about this. But, look, you know, there's a lot of tough decisions to make.

JUDY WOODRUFF: You talk about what bad shape the companies are in. We just mentioned these announcements they made yesterday, Chrysler extending its seasonal shutdown. What does that say about where they stand?

DAVID SHEPARDSON: Well, it says that people are not buying cars and people who can buy cars can't get credit. I mean, Chrysler said yesterday that 20 percent to 25 percent of its customers ready to buy a car couldn't get financing and, as a result, they've got to cut production.

I mean, G.M. is cutting 250,000 units out of the first quarter. You're talking about 60 auto plants are going to be closed for longer in January than were anticipated. That's going to have an enormous impact on production, and suppliers, and everyone who produces metals, you know, steel, anything that goes into those vehicles.

Foreign companies also suffering

JUDY WOODRUFF: But how is this different? As you were saying, they normally shut down over the holidays. It's part of an agreement they have with labor. How is this truly different from that, though?

DAVID SHEPARDSON: Well, normally it would be two weeks. And so, in the case of Chrysler, Chrysler is having a full month stoppage of all of its plants in the United States. That's 46,000 workers, I mean, will not be producing any vehicles until at least January 19th.

And, look, they're also trying to save costs. If they don't produce vehicles, then they don't have to buy parts, as well. I mean, so it's also about conserving cash at a time when these companies are doing everything from turning off escalators to buying cheaper pens, not putting batteries in clocks to cut costs.

JUDY WOODRUFF: And how much wider -- you were saying earlier there's more than just the big three involved in all this?

DAVID SHEPARDSON: Auto sales were down 30 percent across the board, all the foreign companies. Toyota just announced they're going to suspend activity at a new plant that's, you know, due in Mississippi in 2010 to build the Prius. Honda is cutting production; Nissan is cutting production.

I mean, all the companies are facing enormous problems because -- let's face it -- people are very nervous about making any big purchase right now.

JUDY WOODRUFF: And, again, on these seasonal shutdowns, a sense that this could just be a prelude to permanent shutdowns?

DAVID SHEPARDSON: Well, you know, that is not in the cards yet, certainly. I mean, that would require the agreement of the UAW.

But, let's face it, these companies are in very dire shape. They've got to have some sort of aid to get through this period. They've got to restructure.

And, let's face it, if production continues as low as we expect it's going to be next year, they can't keep all these plants running. I mean, G.M. has said by 2012 it's going to cut another 21,000 to 31,000 workers, close nine plants. But in all these plants, if things get worse, they have to take more dramatic steps.

JUDY WOODRUFF: So what the White House says is very important.


JUDY WOODRUFF: David Shepardson, the Detroit News, thank you very much.