Big 3 Offer Painful But Realistic Path to RevivalThe Big Three automakers revealed what the future of the domestic auto industry will look like in the business plans they submitted Tuesday to Congress. What they envision are smaller, more nimble and more competitive companies. Congress should take a careful look at these plans. They map out a path to revival and survival for the domestic industry. But it is a painful path. It is now clear that General Motors Corp., an icon of American industrial might, is undergoing a near-death experience. It has bluntly told Congress it needs $4 billion by the end of the year to stay afloat and ultimately will need $18 billion in federal loans. Ford Motor Co. appears to be in better shape and is seeking a total of $9 billion as a line of credit in case the recession is deeper or longer than expected. Chrysler says it needs $7 billion by the end of the year. But all three companies have offered up a blueprint for becoming healthy again, and Congress should respond by approving the bridge loans they so desperately need. The plans call for the companies to cut costs by closing facilities and laying off workers. They also include the largely symbolic gestures of dumping corporate jets, eliminating bonuses and cutting pay for top executives. The firms announced plans for a dramatic cutback in their product offerings with the sale or elimination of a number of their brands. Thousands of dealerships would also be shuttered. All of these steps are necessary and have been delayed for too long. Even after the planned elimination of dealerships outlined in their survival plans, GM and Ford would both have more than Toyota. But state laws have made cutting unprofitable dealerships extremely difficult for the manufacturers. Those laws ought to be addressed. The auto firms are taking the kinds of steps typically seen in a formal bankruptcy proceeding — restructuring, cutting costs, eliminating jobs and reopening contracts. The firms vowed to seek more concessions from the United Auto Workers union.
The advantage of this process is that it is being undertaken voluntarily and with an eye to the long-term survival of the firms — albeit in smaller form. But as the auto company CEOs have repeatedly pointed out, an actual bankruptcy would stigmatize their vehicles, sending buyers into the showrooms of their foreign competitors. Both Ford and GM warned in their presentations that a sudden default or bankruptcy by a major domestic producer would damage the other carmakers and the interdependent network of suppliers that serve all of the automakers. As it is, the promised elimination of thousands of auto dealers will have a jolting effect on communities across the nation. As East Lansing economist Patrick Anderson noted Tuesday, each dealership is itself a separate corporation with dozens to hundreds of employees and millions of dollars in inventory, and each has a significant local economic footprint. Ultimately, the web of uncompetitive labor contracts, work rules, dealer franchising laws and all of the other impediments will have to fall by the wayside if the Detroit Three automakers are to survive. Even if they survive, this city and state will have a dramatically different economy with smaller auto firms and fewer suppliers. Any company must be profitable to stay in business. It's regrettable that it has taken a major crisis for the manufacturers and the UAW to come to grips with their unsustainable costs. But the economic impact of the domestic auto industry is huge. It is rectifying its mistakes and coping with the additional regulatory costs that have been placed on it by Congress. GM, Ford and Chrysler deserve a chance to put their plans in place. Failure of any one of these companies would devastate an already hurting national economy, spreading the pain far beyond Detroit and Michigan. REPRINTED FROM THE DETROIT NEWS. DISTRIBUTED BY CREATORS SYNDICATE, INC.
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