Big Three's future still in balance

Plans for lengthy plant shutdowns hint at a turning point in automaker history.

Carlos Osorio/AP/File
Closing: Robots weld the front cab of a Chrysler 2009 Dodge Ram pickup at a plant in Warren, Mich.
scott wallace - staff

The Detroit-based Big Three automakers – a foundation of American industrial might for a century – are going to be altered under any US government bailout. The question now may be only how profound those changes will be.

It's possible that the Bush administration still may offer a simple bridge loan to the desperate industry, postponing tough decisions until President-elect Obama takes office. But Bush officials ultimately could also decide on a rescue plan that puts the most troubled firms, General Motors and Chrysler, through something resembling a managed bankruptcy, according to administration officials.

"There's an orderly way to do bankruptcies that provides for more of a soft landing. I think that's what we would be talking about," said White House press secretary Dana Perino on Thursday.

Any federal offer of aid would come attached to more Washington oversight, via an "auto czar" or some other mechanism. That means Woodward Avenue, metro Detroit's main drag, in essence would then run through D.C.

Under the more involved plans under discussion, unions would have to make concessions, as would other stakeholders in the industry, such as bondholders. Plans would call for the number of dealerships to be trimmed.

Some suppliers are likely to go bankrupt, whether or not the United States provides the industry with aid.

As recent announcements of lengthy holiday plant shutdowns demonstrate, the industry has reached a turning point in its history. Ford has said it can shoulder along without US help. But GM and Chrysler can see a river from where they're standing, metaphorically speaking – the Rubicon.

"The auto industry is on very delicate financial footing. The situation is quite dire," says Dennis Virag, president of the Automotive Consulting Group, based in Ann Arbor, Mich.

The Big Three have long closed their US factories around the holidays. Typically, the seasonal shutdown lasts about two weeks.

But on Wednesday, Chrysler announced it was closing all its North American manufacturing plants for at least a month. The plants employ some 46,000 union workers. Ford announced that it would extend the holiday shutdown at 10 of its plants to three weeks, instead of the previously planned two.

The closures come at a time when sales of vehicles in the US are as low as at any time in the past quarter-century. Over the past three months, car and truck sales have declined at a "stunning" 43.7 annual rate, according to a Wachovia Economics Group analysis.

"The one bit of good news in these data is that the rate of decline in motor vehicle sales has clearly slowed, with the sales for motor vehicles now coming below replacement demand," concluded the Dec. 15 analysis.

Meanwhile, in Washington, an aid plan for the industry has been longer in coming than many expected. After the Senate voted down a rescue plan last week, the White House announced that it would offer some kind of aid on its own authority.

At press time, the administration had yet to release a detailed bailout strategy.

President Bush said at an appearance Thursday at the American Enterprise Institute that he had not yet decided what to do. Under normal circumstances, bankruptcy court would be the best way for auto firms to work through credit and debt restructuring. "These aren't normal circumstances. That's the problem," he said.

Mr. Bush said he was worried about the effect of an auto-industry collapse on financial markets. At the same time, he said, he was worried about throwing good government money into a bad situation.

On one matter, Bush was definite: He did not want to punt the problem to Mr. Obama. "I believe that good policy is not to dump him a major catastrophe on his first day in office," Bush said.

The policy of not wanting to use taxpayer dollars to prop up enterprises that are going to collapse anyway is a good one, according to one economic expert. And that's a likely reason that an aid decision has been delayed. Government officials are poring over GM and Chrysler financial records and talking to firm stakeholders in an attempt to understand the firms' way forward.

"There is no reason to give credit if the firms have business plans you think are likely to fail. It's better to say 'no' at the outset," says Gary Burtless, a senior fellow in economic studies at the Brookings Institution.

But simply allowing GM and Chrysler to go bankrupt on their own risks their liquidation, according to Mr. Burtless. Foreign auto firms might buy some of GM and Chrysler's assets, but not all.

• Material from Associated Press was used in this report.

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