What to do with Detroit's Big Three automakers?

Nov. 18, 2008 - PRLog -- It seems like the time has come for more moral agonising over how a government should act in this recession.

On the one hand it used taxpayers' money to bail out the banks and the financial institutions because their role in the economy is systemic. Losing the big banks would have been catastrophic.

But what about other key industries that employ hundreds of thousands of people?

Sales at GM, Ford and Chrysler are down 20% this year, but Detroit automakers employ hundreds of thousands of workers, with suppliers dealerships depending on the Big Three. Not only that but banks and other investment funds are exposed to tens of billions of dollars should the bailout fail to happen.

With the US economy now in near recession, Michigan's long depression seems likely to worsen, having lost 489,900 jobs in the last eight years. Companies fears yet another "rust belt" crisis.

Assuming there is a federal bailout of the auto industry, there will still be huge job losses, not only in Michigan, but across the country. With an estimated 1.4 million jobs to be lost and perhaps a 2% drop in the US GDP, the industry is asking for a further unrestricted loan of $25 billion along with car loan guarantees.

Recent job cuts and corporate earnings announcements indicates the the US is cutting back on labour costs fast: American Express is to lay off nearly 10 percent of its workforce, or 7,000 workers; Motorola plans to sack an additional 3,000 staff; Electronic Arts will cut 6 percent of its workforce amid falling retail sales; Eastman Kodak said it would eliminate an unspecified number of jobs in coming months; CBS recorded a $12.6 billion quarterly loss; and International Paper laid off workers and closed plants earlier this year, to name but a few.

As job losses continue to mount in the devastated auto industry, why should they have preferential treatment over other industries that are "non-systemic" also?

Detroit's Big Three automakers are begging Congress for a $25 billion government rescue but it could set a precedent for almost any other industry to follow suit. It's a precarious decision to make and one that cannot be made lightly.

Another contentious issue is that it is estimated that China will overtake the United States as the world's leading manufacturer by 2016-17, with rapid gains in the market shares of textiles, basic metals, computer equipment, appliances, and mineral products. Is it an inevitability that the automakers will fold in the next few years anyway?

It could still continue to lead the way in high-value manufacturing industries such as aerospace, pharmaceuticals, and specialised equipment but car-making but could it not be the case, when reading behind the lines, that the auto industry is so inextricably tied up with the oil industry it continues to produce gas-guzzling cars? Should one of the conditions, not just financial but environmental, be that the cars they produce in the future would have to be in line with the greening of the industry?

Sen. Carl M. Levin, D-Mich., an architect of the bailout, has suggested that the government provide loans to the US automakers and suppliers in exchange for a federal stake in the companies, or warrants that would let the government profit from future gains. But that does not go nearly far enough.

The Senate auto bailout bill notes that 355,000 US workers are directly employed by the auto industry, and an additional 4.5 million work in related industries. Fair enough, but how is injecting a further $25 billion in emergency loans to avert a collapse going to help in the medium-term when the cars they produce will not be recognised as either economically and environmentally viable?

Even if all parties involved - manufacturers, union leaders and government - fashion a package that includes low-interest loans, as well as management salary decreases, will these companies ever return to profitability when the cars they produce are non-sustainable?

It's a dichotomy, I grant you, but there never seems to be enough thought put into restructuring plans.

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