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Bankruptcy Option Looms as U.S. Automakers Face Shaky Future

The Obama administration's call for drastic reforms of GM and Chrysler has sparked new debate on the future of Detroit's "Big Three" automakers. Analysts discuss what the restructuring effort may mean for the auto industry's future.

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    First, reaction to the president's latest terms for the auto companies. It comes from two people who have long studied the industry.

    Paul Ingrassia is a former Detroit bureau chief for the Wall Street Journal. He's working on a book about the industry in crisis and writes for the Journal and Portfolio magazine. And Rebecca Lindland follows the industry at Global Insight, an economic and financial analysis firm.

    Thank you both for joining us.

  • REBECCA LINDLAND, Global Insight:

    Thank you.


    Paul Ingrassia, this seems like a — we heard a lot about stress tests for the banking industry. It seems like G.M. and Chrysler kind of failed theirs.

    PAUL INGRASSIA, former Wall Street Journal Detroit bureau chief: Well, Gwen, I think in this case what's good for General Motors really is good for America.

    I was quite impressed today, and perhaps surprisingly so, by the action the president took. What he did was really extend the deadline that the Bush administration had put in place last December. And the risk in doing that is you come across as saying, "Well, you know," it's like saying to your kids, "You know, kids, this time I really mean it. You've got to behave."

    The difference is he put in leadership changes, not just at the CEO level of General Motors, but also at the board level. And this clearly was a company that needed new approaches. The president also used the word "bankruptcy" potentially to prepare the nation for this sort of thing. And I don't think with the language he used today he's going to back down.


    Rebecca Lindland, you know, we heard Austan Goolsbee just a few moments ago, who's a member of this auto task force, basically saying they thought that both G.M. and Chrysler had been too optimistic in their predictions in the plans that they turned in. Is the government being too pessimistic or just about right?


    No, I think the government is being pretty realistic. In the preliminary plans that were submitted on February 17, both companies actually used the IHS Global Insight forecasts, but those were our forecasts from a few months ago and we since downgraded them, because the economy is that much worse.

    So when you looked at their downside scenario, that's a little bit more realistic to what they're facing. And those are numbers in like the 9.5 million unit mark, which is about a 40 percent decline than 2007.

    So we are facing an industry that is absolutely being decimated and two companies that weren't particularly healthy from a financial standpoint back in 2007, and they're even less healthy now.

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