American Automobile Industry Seeks Rescue Plan to Survive

The White House may tap the $700 billion financial industry bailout fund to prevent the collapse of the ailing auto giants after the Senate failed to reach a compromise on a rescue package.

Chrysler and General Motors said they are in danger of chapter 11 bankruptcy if they do not get funding. Ford is in better shape, but would like access to cash if it needs it.  

Lawmakers considered a bill that would have loaned $14 billion, but talks fell apart when Senate Republicans said they would only vote for it if the auto workers' union agreed to wage cuts.

 “Republicans will not allow taxpayers to subsidize failure," Republican leader Sen. Mitch McConnell said Thursday.

Let’s Make a Deal

	President-elect Barack Obama said that the failure of the American auto industry would be devastating to the economy.

The so-called bridge loans are not intended to fix the companies but rather to stabilize them until March when the new administration and the new Congress can revisit their situation.

President-elect Barack Obama told reporters that he understands the frustration of taxpayers with the idea of more bailouts, but he said that allowing the Big Three to fail "would lead to a devastating ripple effect throughout our economy.”

The Big Three: Can They Compete?

	General Motors is one of the "Big Three" automakers and is based in Detroit, Michigan.

All three are mainly based out of Detroit, Michigan, which is also known as the “Motor City”.

While it is hotly debated how many jobs exactly are dependent on the Big Three, their chief executives testified to Congress that at least 3 million jobs are directly dependent on their industry.

The three companies share a common geography and business model, and the majority of their workers are unionized under one of the largest and most powerful labor unions in the United States, the United Auto Workers or UAW.

Highest Wages, Best Benefits

	Employees of the American-owned automakers have better health insurance and retirement benefits than employees of foreign-owned automakers.

But the Big Three compete against foreign-owned companies such as Toyota, Honda and Volkswagen, which have manufacturing plants in the United States -- many in the South -- where the workers are not unionized.

A University of Michigan study found that for every hour a unionized worker puts in, one of the Big Three spends about $73, compared with $48 for a non-unionized Toyota worker, a difference of more than $25 an hour.   

See New York Times graphic on autoworker pay.

Workers for the American companies make only about $3 more per hour than their non-unionized counterparts ($29 compared to $26), but they have much better health insurance and retirement pensions.

But what is really weighing the Big Three down is that they have built up a huge pool of workers who retired long before Toyota opened a plant in this country.  The American companies provide generous pensions to these retirees, most of whom spent lifetimes working and expecting these benefits.   

Other Companies, Other Models

	Toyota recently surpassed GM as the world's largest car manufacturer.

Throughout the 1990s and in this decade, American vehicles were synonymous with large trucks and SUVs. While gas prices were low and the United States economy was growing, consumer demand for these vehicles was high. With gas prices peaking at over $4 a gallon last year and uncertainty in the economy, consumers have started to trend towards smaller, more fuel-efficient cars from other companies.

The Big Three has always made regular cars, but for a long time they didn't focus on those products and quality suffered.

Toyota finally surpassed GM in early 2007 as the world’s largest car manufacturer. It has sold the fuel-efficient Prius, a mid-size hybrid electric car in the United States since 2001 and recently just sold its 1 millionth hybrid car worldwide.

A Successful Past Bailout

Congress reluctantly passed the "Chrysler Corporation Loan Guarantee Act of 1979." As part of the plan the military bought Dodge pickup trucks to use as cargo vehicles. Chrysler innovated and came up with the best-selling minivan concept. By 1983, the federal loans were paid off although Chrysler was still the weakest of the Big Three.