TOPICS > Economy

Will U.S. Auto Industry Manage to Survive Recession?

July 30, 2010 at 6:16 PM EDT
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On a day that President Obama touted his administration's efforts to save the U.S. auto industry, Judy Woodruff assesses the state of the industry with Micheline Maynard, senior editor of Changing Gears, a new public media project focusing on the future of the industrial Midwest, and economist Martin Bailey.
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JUDY WOODRUFF: Now: The overall economy shows new signs of slowing

down once again.

Consumer spending is down, companies haven’t been restocking their shelves, and the nation’s trade deficit is growing again, all of which contributed to economic growth slowing to a rate of 2.4 percent in the second quarter, the lowest in nearly a year. That’s down from 3.7 percent from January to March and 5 percent at the end of 2009.

Still, on a trip to Michigan today, President Obama pointed to progress.

U.S. PRESIDENT BARACK OBAMA: Now, this morning we learned that our economy grew by 2.4 percent in the second quarter of the year, so that means it’s now been growing again for one full year. We’ve got to keep on increasing that rate of growth and keep adding jobs, so we can keep moving forward.

JUDY WOODRUFF: The Commerce Department report did show that business investment in equipment and software was the best in 13 years. And new home construction surged, after lagging in the first quarter.

Overall, though, it’s not nearly enough to bring down unemployment, now at 9.5 percent. And Republicans charged again that federal spending is holding the economy back.

Representative Pete Sessions of Texas:

REP. PETE SESSIONS (R-TX): Mr. Speaker, the numbers are stunning. Over the time that President Obama has been in office, we have lost 2.5 million free enterprise system jobs, and, yet, 500,000 government jobs have been added in that period of time. The assault on the common man of this country is unrelenting by the Democrat majority.

JUDY WOODRUFF: Hoping to highlight economic successes, the president visited two auto plants in the Detroit area. He touted the turnaround since General Motors and Chrysler went into bankruptcy and received billions in bailout money.

One year later, the industry has added 55,000 jobs.

BARACK OBAMA: So, today, this industry is growing stronger. It’s creating new jobs. It’s manufacturing the fuel-efficient cars and trucks that will carry us towards an energy-independent future. You are proving the naysayers wrong, all of you.

JUDY WOODRUFF: The president later visited a GM plant and briefly got behind the wheel of the automaker’s new battery-powered Chevrolet Volt. The government now owns 61 percent of GM.

We take a closer look now at the state of the auto industry and the broader prospects for manufacturing. Micheline Maynard is the senior editor of Changing Gears, a new public radio project focusing on the future of the industrial Midwest. She’s an author of several books on business and a former reporter for The New York Times. And Martin Baily is an economist with the Brookings Institution. He served as chairman of the Council of Economic Advisers under President Clinton. He’s also a senior adviser to McKinsey & Company, working on projects about globalization and productivity.

Thank you both for being with us.

MARTIN BAILY, Brookings Institution: Thank you.

JUDY WOODRUFF: Micki Maynard, to you first.

The president was talking up the auto industry today. How much has it turned around?

MICHELINE MAYNARD, The New York Times: The auto industry is in a very slow turnaround. And you have to think back a year. We had the worse car sales essentially in over a quarter-of-a-century.

Chrysler had actually shut down its factories while it went through bankruptcy. And thousands upon thousands of workers were thrown out of work. There was something like over 300,000 people lost their jobs in the auto industry between 2008 and 2009. And that’s about the size of Pittsburgh.

JUDY WOODRUFF: Martin Baily, how do you see it? How much has the auto sector rebounded?

MARTIN BAILY: Well, I think it was essential that the president bailout these oil (sic) industries, because it just would have been disastrous when the economy was falling off a cliff not to do it.

The real question is now, can they survive in the long run? And that depends what they do. Now, we do have, of course, an automobile industry with a lot of competitors. The question is, can those Detroit companies, Ford, GM and Chrysler, can they turn it around? I think they have been given a chance. I think they have a real shot at it, but it’s not a sure thing yet.

JUDY WOODRUFF: What does it look like you to, Micki Maynard, in terms whether they can continue what has begun?

MICHELINE MAYNARD: I believe General Motors has the best chance of doing so.

Chrysler is the big question mark, because they’re now under the management control of Fiat, the Italian automaker. And we have heard that Fiat wants to make Chrysler — give it more focus on small cars. But, remember, this is the company that brought you the minivan. This is the company — President Obama was at a factory today that makes the Jeep Grand Cherokee.

So, it’s sort of a U-turn for Chrysler under foreign management. And that’s going to be a tougher sell. I think General Motors has seen the light. They have new management. Many people from outside are at the top of General Motors. And they know that — they have sort of stared into the abyss, and they don’t want to fall into it.

JUDY WOODRUFF: So, staying with you, Micki Maynard, General Motors about to be publicly traded, we believe, in the next month or so. Where does the bailout stand? Do you see it as a success, or what? How do you judge it?

MICHELINE MAYNARD: I think it’s too soon to tell, Judy.

General Motors still owes the government — I shouldn’t say owe, because they were given the bailout free and clear. They have paid back a small loan that they had to pay back. But there is about $45 billion in taxpayers’ money that is riding on this initial public offering. That means that General Motors will be selling stock again.

And so what we really need to see is a couple of things. General Motors has to sell the stock. People have to want to buy it. The price has to go up. And then they also have to come out with new vehicles, like the Chevrolet Volt that we just saw in your piece. That has to be a success.

They have been talking about that car now for several years. And if there are any problems with the Volt, there may be people saying, look, we gave them all this money for nothing. I don’t think General Motors believes that, but people will be watching to see what its performance is.

JUDY WOODRUFF: Martin Baily, let’s broaden this out. We did see in this new economic report today that business investment was growing, they said by a significant amount. We heard the president today talking about the advanced battery industry as being part of the broader picture, manufacturing picture. Are there other bright spots out there?

MARTIN BAILY: Oh, yes.

I think, if you look at the manufacturing sector, a lot of the companies are sitting on a lot of cash. So, they have got the money to invest. An, as we have just seen in the data, some of them did invest that in new equipment and new computers and so on. So, I think they are poised to grow.

And they have been growing in terms of exports. What we haven’t seen is a lot of employment. And I think that that is going it to take some time. Most of them say, well, I think we can expand without hiring a lot of new people for a while. But, eventually, if they keep growing, they will be able to do that.

The other possible problem on the horizon is that the dollar has gone up. And I think one of the most important things to get U.S. manufacturing competitive again is to make sure that we have the right value of the dollar; it’s not overvalued; it’s not driving our companies out of business. So, there are a lot of question marks there.

JUDY WOODRUFF: Micki Maynard, how does the broader manufacturing picture look to you?

MICHELINE MAYNARD: I am optimistic about manufacturing being part of the American economy, but I don’t think we can think of it in the way we used to, where people would open big factories and employ 5,000 people, and you could get a job there because your cousin or your uncle worked there.

I was thinking about the Toyota plant in California, in Fremont, California, that just closed down. When it was a joint venture with General Motors, they had almost 5,000 workers. Now that Toyota is going to be building electric cars with a company called Tesla, it’s only going to have about 1,200 workers.

We’re still going to have manufacturing, but we’re not going to have the mega-plants of the past. We’re going to have plants half that size and maybe even much smaller than that.

JUDY WOODRUFF: Martin Baily, the U.S. is still, as of this year, leading any — every other country in the world in manufacturing. What is it going to take for that to continue? I mean, there is a lot of speculation China is going to overtake next year. But what is it going to take?

MARTIN BAILY: Well, we are very strong in technology. And I think we need to maintain that strength, so support for research and development and technology.

I think we have a lot of talented people, but — but there are some limitations on the talent side. I actually think we should loosen up the requirements on some of the H-1B visas so that companies thinking about expanding know they can get the talent if they need it.

JUDY WOODRUFF: You mean from abroad.

MARTIN BAILY: From abroad.

And then we need to make sure that our educational system, including our community colleges, is actually providing the kind of skilled work force. We need people that, as the earlier comment was, not just you get a job because you know your cousin there, but because you have got the right numeracy skills, the right ability to use a computer, to use the machinery. Those are the skills that we have to have to — to go forward.

JUDY WOODRUFF: Micki Maynard, what else would you say about what the workers tomorrow, next month, next year, next decade have to do to be ready for the manufacturing of the future?

MICHELINE MAYNARD: It’s going to be an atmosphere in which you may need at least a community college degree, if not a bachelor’s degree.

I worry about people who are considered to be skilled trades workers who always got a little bit more money and maybe better hours and better benefits than people — we hear a lot about the state of Michigan, for example, with a lot of these skilled trades workers, but their skills are for the 80s and the 90s. And we need people with skills to go forward into this decade.

So, I can’t put enough emphasis on education. And I hope that the people who are thinking about manufacturing careers realize that they going to be doing a lot of thinking and intuition on the floor, and they’re going to need all the skills — education skills that they can get.

JUDY WOODRUFF: And are these the kinds of things, Micki Maynard, you are hearing from people you talk to inside these industries?

MICHELINE MAYNARD: Yes.

You know, look at the numbers of people who apply for jobs at new factories like Honda and Toyota and Nissan and elsewhere. They can have their pick. And they don’t need to pick someone because they performed well on the high school football team or because they were friends with someone. They can go through anything they want, from analytical skills, to brawn, to any kind of thinking on their feet.

So, it’s very tough. I actually once took the training program to become an autoworker at Toyota, and I flunked after 10 minutes. So, clearly, the skills that make you a journalist do not make you ready for today’s factory floor.

JUDY WOODRUFF: Quick final word on what is going to be needed, Martin Baily?

MARTIN BAILY: Well, I think we also need motivation. A lot of what companies filter on, when they look for workers, which workers they want, they want the ones that are going to show up and work hard. So, that is also something that has been — been questioned in the past. And that’s something I think that has got to change.

JUDY WOODRUFF: Martin Baily, Micki Maynard, thank you both.

MARTIN BAILY: Thank you.

MICHELINE MAYNARD: Thank you, Judy.