Who’s to blame for automakers’ woes?
The industry itself bears some, but not all, of the responsibility, as GM and Chrysler seek more US aid.
The rising price tag for the possible bailout of General Motors and Chrysler reflects some challenges that are particular to Detroit and the car industry, but also some problems that are much broader – ones at the core of the current US recession.Skip to next paragraph
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No doubt about it, the industry got itself into a big mess. The Detroit carmakers were unprepared when gasoline prices surged past $2 a gallon, then $3, then close to $4. For years, management and the United Auto Workers crafted labor deals that proved to be unsustainable in the face of growing foreign competition.
But as GM and Chrysler seek an additional $21.6 billion in emergency loans from the government, other factors are also at play. Like much of the US economy, the challenge for Detroit now involves things like sagging pension funds, tighter access to credit for consumers, and questions of whether government can provide a bridge toward recovery.
“It’s a symptom of what we’re facing as a country right now,” says Don Grimes, a University of Michigan economist who follows the auto industry. “They need people who can get loans in order to buy the product, which is a problem with the whole private sector now.”
Labor and management at the car companies have made a lot of mistakes, in his view. But their travails also parallel themes that go beyond the auto industry. The carmakers are among the hardest hit by the fallout of a housing bubble and credit crisis that was manufactured in Washington and on Wall Street, not Detroit.
While some economists warned in advance of a possible storm, the mainstream view before last year was that a deep recession was very unlikely. When the storm did hit, consumers pulled back first from big-ticket purchases that they could postpone. The sales volume at car dealerships fell by 40 percent.
Ford Motor Co. is trying to survive and restructure by tapping credit lines it secured before car sales tanked. GM and Chrysler, facing a severe cash crunch, say they can’t make it without US help. They’ve received $17.4 billion in loans since December. On Tuesday, they requested more cash and outlined how they would use it to become viable again.
Many Americans don’t want Detroit to get any extra government help, given the challenges throughout the economy. Policymakers are generally concerned that, without more aid, the result would be a disastrous tide of job losses at a time when unemployment is already soaring.
ither way, the auto industry is at the leading edge of problems that resonate throughout the economy. These include: