TOPICS > Economy

Automakers Look to White House to Revive Bailout Hopes

December 12, 2008 at 6:20 PM EDT
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The White House said Friday it may use funds from the $700 billion financial bailout package to aid struggling U.S. automakers after the Senate rejected a rescue plan. Analysts discuss the debate over the bailout.
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JEFFREY BROWN: And back live now, we look further at where things stand with Paul Ingrassia, co-author of “Comeback: The Fall and Rise of the American Automotive Industry.” He’s a former Detroit bureau chief for the Wall Street Journal, where he won a Pulitzer for his coverage of the industry.

And Csaba Csere, editor-in-chief of Car and Driver magazine.

Well, Paul Ingrassia, you have written critically of the companies and the union in the past. As you listen to Mr. Gettelfinger now and the CEOs recently, where are we in terms of their willingness, do you think, to make changes?

PAUL INGRASSIA, Former Wall Street Journal Detroit Bureau Chief: Well, we’re obviously at an impasse, Jeff. I mean, I think what you saw happen last night was that the UAW was really betting that we’re going to get a better deal from the political system than we’re going to get from the marketplace or from the bankruptcy court.

So that’s why they basically bet that the Bush administration would blink, which seems to be happening in this case.

The irony is, of course, that the UAW spent most of the last eight years being very critical of the Bush administration, which, you know, is neither here nor there, but it is a remarkable irony in this case.

So I think where we go from here is really more lobbying, because everyone sort of feels that, you know — I mean, you heard it from Mr. Gettelfinger — everyone feels that we’ve given it the office. And it’s true. Everyone has given something, but obviously the solution still is not at hand.

Industry has made some changes

Paul Ingrassia
Former Detroit Bureau Chief for WSJ
The problem is, though, that, you know, gee, the Japanese auto industry really came here in force in 1973. We are 35 years later. How long does it take?

JEFFREY BROWN: Csaba Csere, where do you think we are, in terms, again, of the willingness to move towards some kind of change?

CSABA CSERE, Car and Driver Magazine: Well, there already has been a tremendous amount of change. You know, sometimes in this debate it's forgotten that, since 2000, the car companies have reduced their payrolls by literally tens of thousands of white-collar and blue-collar employees.

Ford has sold Jaguar. They've sold Land Rover. They sold Aston Martin. Ford and G.M. are consolidating their international operations, eliminating duplication. There's already been a huge amount of change.

And, of course, some of these stakeholders, like these stockholders, have been basically wiped out in these companies. So they've made the ultimate contribution.

The fact is, though, this is a very complex industry. You don't change it overnight. You don't restructure overnight. And it takes a long time.

And both Ford and G.M. would probably be able to stand on their own two feet if we had another four or five years of good economy. Unfortunately, we don't. And that's why we need the help.

JEFFREY BROWN: Well, so then where -- Paul Ingrassia, starting with you -- where are the key sticking points at this point? I mean, we just heard Mr. Gettelfinger talk about the sense that they have made a lot of concessions. As you said, everyone is saying we've given it the office already.

Where are the sticking points? Is it over retiree obligations? Is it still wage concessions? Is it at the leadership of these organizations? What do you see?

PAUL INGRASSIA: Well, I think it's at all of the above and probably a few more. I mean, it's really quite interesting that, for all the talk about, you know, the wage issue, I think the wage issue is really -- it's part, but only part of the competitiveness issues that the Detroit companies face vis-a-vis the nonunion Japanese, Korean and German factories here.

I mean, you know, I have a copy here of the UAW's master contract with General Motors, which is really -- frankly, this is only about 20 percent of the master contract. It's a very thick, complex document.

Meanwhile, if you go out to California to the joint venture factory that General Motors has with Toyota in Fremont, California, it's called NUMMI, for New United Motor Manufacturing, Inc.

The NUMMI contract, with the UAW, is a much slimmer, more streamlined document, with fewer job classifications, fewer complex arbitration issues and work rule issues, and this sort of thing.

So I think that -- as I think Csaba says, I think he hit it on the nail when he said that it's a complex industry and that if they had maybe another four or five years, that was the plan. They could do this more gradually.

The problem is, though, that, you know, gee, the Japanese auto industry really came here in force in 1973. We are 35 years later. How long does it take?

G.M., Chrysler are 'probably broke'

Csaba Csere
Car and Driver magazine
And unless the economy were to make a miraculous recovery and we go back to 15 million car sales by March, the companies will need more money.

JEFFREY BROWN: Well, if they had another four or five years, I mean, Csaba Csere, we just heard Mr. Gettelfinger talk about a matter of weeks at this point. You talk to a lot of people in the industry. Does that sound right to you, without aid coming?

CSABA CSERE: Well, there's no question that it's a matter of weeks. I mean, functionally G.M. and Chrysler are probably broke as we sit here.

In their third-quarter report, G.M. said they were down to about $16 billion and that they were burning through a couple billion a month. Well, we're two-and-a-half months beyond the end of September, which is how far the third quarter went, so that would be bringing G.M. down to about $11 billion.

And they have said publicly that the company needs $10 billion to $14 billion of working capital to stay in business. So they're deep within that range, and they need that help right now, otherwise they are going to go into Chapter 11.

JEFFREY BROWN: Yes -- excuse me -- but what does that mean in terms of staying in business? I had asked Mr. Gettelfinger, and he didn't want to go into a specific number. But the number being talked about with the TARP aid would be about $14 billion. What kind of time does that buy?

CSABA CSERE: Well, what that buys probably is until next spring, until the next administration comes in, gets its feet on the ground, but it literally buys a matter of months.

And unless the economy were to make a miraculous recovery and we go back to 15 million car sales by March, the companies will need more money. That money alone does not restructure and save the companies. It simply keeps them alive for another six months.

Auto makers 'out of time'

Paul Ingrassia
Former Detroit Bureau Chief for WSJ
So that the only thing that could really make a difference in this situation, besides a regular Chapter 11 filing on the one hand or tons of government money on the other hand, would be an automotive reorganization act.

JEFFREY BROWN: And, Paul Ingrassia, in terms of the amount of money looking forward, some experts have talked about tens of billions of dollars at the high end up to about $125 billion. Numbers like that sound scary, but are they right to you?

PAUL INGRASSIA: Well, that is the highest number I've heard. I think whatever the issue, though, you know, one of the debates we've had in this country over the last some years is that, when we went into Iraq, we had no exit strategy. And that has really got to be a concern here. What is the exit strategy for the government getting out of this business, in terms of propping up the companies?

Now, you know, I really do believe that, given the fragile state of the U.S. economy today, that a government-sponsored restructuring that would be parallel to a bankruptcy restructuring, but not called bankruptcy, would be the only thing that would get the changes made in the compressed amount of time because, as Csaba says, they're out of money. They're out of time.

So that the only thing that could really make a difference in this situation, besides a regular Chapter 11 filing on the one hand or tons of government money on the other hand, would be an automotive reorganization act in which you give a government-appointed restructuring trustee the similar kind of powers you would give to a bankruptcy judge trustee in a Chapter 11 proceeding.

Auto industry is product-oriented

Csaba Csere
Car and Driver magazine
They're in the process now -- they have new product plans that are much better. You look at the recent Ford products, the recent General Motors products. They're quite desirable. They're making headway.

JEFFREY BROWN: What do you make of that, Csaba Csere?

CSABA CSERE: Well, the problem with that is -- from a financial standpoint, it sounds great, but this is a product-oriented business. The big three got themselves into trouble because for many years they produced products that customers didn't want to buy.

They're in the process now -- they have new product plans that are much better. You look at the recent Ford products, the recent General Motors products. They're quite desirable. They're making headway.

But they're big companies, they have huge product portfolios, and they don't turn them around overnight.

Now, is some federal restructuring official going to be the one to make decisions on what new cars and trucks look like and which particular ones are built? I don't think that's the case; I think those decisions have to be left to the car companies. Perhaps some federal czar can make sure the money is actually being spent towards the new products.

And I just want to emphasize that, the longer these companies dangle, the worse their product turnaround gets, because delaying the new products is one of the first things companies often do in order to save money. And if Ford and G.M. run out of money and have to delay new products, then, when the economy turns around, if the cupboard is bare, that isn't going to help those companies stand on their own two feet.

JEFFREY BROWN: All right, we will leave it there for now. Csaba Csere and Paul Ingrassia, thank you both very much.

PAUL INGRASSIA: Thank you.

CSABA CSERE: Thank you.