In a desperate bid for solvency, General Motors is seeking a merger with Chrysler. Chrysler has talked with Renault and Nissan about partnerships. And Ford, GM and Chrysler — backed by Michigan lawmakers — are lobbying Washington to give them cash, implying that failure to provide a bailout could doom the industry to bankruptcy.

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Are the Big Three worth saving?

The U.S. auto industry’s downward spiral has accelerated sharply in recent weeks. In a desperate bid for solvency, General Motors is seeking a merger with Chrysler. Chrysler has talked with Renault and Nissan about partnerships. And Ford, GM and Chrysler — backed by Michigan lawmakers — are lobbying Washington to give them cash, implying that failure to provide a bailout could doom the industry to bankruptcy.

In September, Congress approved $25 billion in loan guarantees for automakers, and rules for those loans are being drafted. But the companies say they need more — now.

Sales have fallen off the cliff. GM, Ford and Chrysler are burning through cash far more quickly than they’re bringing it in and none has been able to borrow money in months because of the credit crisis.

White House spokeswoman Dana Perino said Tuesday the auto industry has talked to the Bush administration about funding on a much broader scale than the two programs approved by Congress earlier this fall.

“No doubt that the automakers are big important companies, important to a lot of families and important to a lot of regions in this country,” Perino said. “We are capable of competing at a level where these companies can succeed; they might just need a little help. And that’s what Congress asked us to help provide them.”

Meanwhile, the bad news continues.

This week, rating agency Moody’s downgraded Chrysler and GM debt for the second time in three months, as well as the debt of Ford’s lending arm, citing “the pace and severity of erosion in the U.S. automotive sector” and suggesting the companies might have difficulty remaining solvent through 2009.

With about 200,000 U.S. employees, hundreds of thousands more abroad and $400 billion in annual revenue among the Big Three, the prospect of failure by any of them is worrisome. Yet, there is considerable debate about what might happen if they did fail.

Some analysts, economists and industry insiders predict a cataclysm, while others foresee little more than a shift to foreign companies such as Toyota and Honda.

Some argue that, in the long term, the U.S. economy would be better off moving past auto manufacturing.

“A failure from the Big Three would be a huge, huge hit,” said Donald Grimes, a research specialist at the University of Michigan. “But there’s a real question about whether there’s room for all of them.”

Others think the failure of just one of the Big Three would send shock waves through the entire manufacturing sector that could devastate suppliers and freeze up the other two carmakers. Hundreds of thousands of jobs would be lost.

“If Ford or GM goes down, you take a 2 million-job hit” that also would dump hundreds of thousands of retirees on the federal Pension Benefit Guaranty Corp., said David Cole, chairman of the Center for Automotive Research.

Chrysler and GM will be responsible for an estimated $90 billion in pension and health-insurance benefits by 2017.

In October, the center began running what it calls “catastrophe studies” to predict the consequences of an automaker’s failure. The studies project a toll of up to 2 percent of gross domestic product.

“The hit to the economy is $200 (billion) to $300 billion,” Cole said.

The Big Three’s slow loss of market share accelerated in the 1990s. In the 1970s, GM controlled more than 40 percent of the U.S. market; in 2008, foreign carmakers account for 51 percent of U.S. sales.

What’s more, many foreign automakers have plants in the U.S. So far in 2008, 27 percent of the cars bought in the United States were built in U.S. plants owned by foreign carmakers.

That, says David Gregory, law professor at St. John’s University and a former labor representative for Ford, clearly indicates where the industry is headed.

Companies such as Nissan, with a huge operation in Tennessee, and BMW, which builds vehicles in South Carolina, have a huge cost advantage over Detroit because they erected plants in areas where labor is inexpensive and local laws make it difficult to establish unions.

Last fall, the Big Three renegotiated their contracts with the United Auto Workers, imposing a two-tier wage structure that is more competitive with foreign automakers. But they won’t see many of the benefits until 2010.

“The reality is that Japanese and European automakers are already in the U.S. in a big way,” Gregory said. “They can more than make up the capacity lost by the closure of the Big Three. I’d say they could do it in five years or less.”

He and others contend that companies such as Toyota would quickly fill the void for supplier giants such as Lear and Johnson Controls, particularly if the economy recovers enough to boost sales to pre-2008 levels.

For laid-off autoworkers willing to relocate, they might even offer employment. Essentially, the theory goes, the net effect on employment would be nil.

“After a period of adjustment, it would basically be a wash,” said Grimes.

Romain Wacziarg, economics professor at Anderson School of Management at the University of California, Los Angeles, goes a big step further. He suggests that building any cars in the U.S. — be they Toyotas or Chevys — no longer makes sense because they can be built more efficiently in semiskilled-labor markets such as Mexico.

“You have very severe short-term effects on communities,” Wacziarg said. “But in the long run, the economy learns to specialize in new activities that have a higher value. Pittsburgh reinvented itself after steel. Detroit may have to do the same.”

As U.S. bulk steelmaking ceded to steel specialties, so could automaking focus on cutting-edge vehicles such as hybrids and electric cars.

“I think carmaking in the U.S. will continue to exist in some form,” said Elon Musk, chairman and chief executive of San Carlos, Calif.-based electric carmaker Tesla Motors. “There’s some fundamental restructuring to be done though.”

For those who work in the auto business, such a transition is unthinkable.

“If you’re looking at identifying an essential part of the economy, we would insist that this industry still plays a huge role,” said Greg Martin, a GM spokesman. “Any plan to stabilize the economy would have to encompass the U.S. auto industry.”

But any bailout might be pouring money down a hole, said Gregory.

“The damage to the public psyche of losing GM, Ford or Chrysler is incalculable, and the effect on whatever is left of the Rust Belt will be even worse,” he said.

“But the truth is, our economy doesn’t depend on cars, not anymore. The only question is how painful the transition will be.”