- The Washington Times - Thursday, February 19, 2009

In the wake of the U.S. automakers’ restructuring plans submitted to the federal government Tuesday, the Obama administration has a fundamental choice: make a commitment like other countries to invest in the nation’s auto industry to keep it viable or not.

“At the end of the day, what we may have to do is make a policy decision as to whether a domestic auto industry is sufficiently important to invest in,” says Richard Block, a professor of labor and industrial relations at Michigan State University.

“Then the question becomes, if so, what should we do to maximize the likelihood that this is going to happen? Other countries do invest in their car companies and, in general, they have industrial policies where they support companies in different ways. The United States has never gone that way - we are pretty much a laissez-faire country. But in doing so … we put our companies at a disadvantage.”

General Motors Corp. and Chrysler LLC on Tuesday returned to federal officials gloomy progress reports on their restructuring plans, asking for more bailout money to stay afloat.

After previously receiving more than $17 billion in emergency aid, the automakers, struggling to survive amid the worsening global economic crisis, said they needed an extra $21.6 billion to keep from going bankrupt as each moves closer to a March 31 deadline on finalizing a restructuring deal with Washington.

“In the 11 weeks since the filing of our initial plan, the condition of the U.S. and global economies and the auto industry has significantly deteriorated,” GM Chairman and Chief Executive Officer Rick Wagoner said at a news conference after releasing details of his company’s plan. “This is significantly more aggressive, because it has to be.”

The restructuring will be painful with both GM and Chrysler shedding brands, dealers and workers in an effort to return to viability. GM, in its plan, said it will cut 50,000 jobs and close 14 factories in the U.S. with a goal of paying back the government loan money starting in three years.

“GM has a viable plan,” Mr. Block said. “The problem is they have too many car lines and too many dealerships. It’s not labor costs at this point, so I think they have to get their car lines and dealerships in line with demand for their products.”

Chrysler, which analysts said is most vulnerable to going under, said it would cut 3,000 more jobs, even as it seeks to form badly needed alliances with other companies, including Italy’s Fiat SpA.

While the companies made impassioned pitches for more rescue money, some wonder whether Americans are not on the edge of what experts are calling “bailout fatigue” as the government has already stuck a hand out to the U.S banking industry, with little stipulation on how to use the money.

Both auto companies returned to the government with their plans for restructuring Tuesday. While they have argued that bankruptcy would be an extreme measure, analysts say that in some ways the reorganizations already amount to a type of structured bankruptcy, even if the companies are not calling it that publicly.

GM offered the Treasury Department three different bankruptcy plans. Even as some in Congress have said bankruptcy may well be the best option, forcing the unions to offer concessions and renegotiate contracts that they otherwise likely would not do, both companies issued somber warnings that the cost of going bankrupt far outweighed efforts to stay afloat, citing the loss of jobs as well as loss of consumer confidence as car warranties, parts and service would be affected.

Mr. Block said the U.S. government has a long history of supporting other industries. including agriculture, but somehow subsidizing autos is cast in a different light.

“We have been giving the farmers aid for years,” he said. “This idea that somehow there is something socialistic about helping the auto industry, but not other industries, is inconsistent.”

Faced with the current economic crisis, the U.S. cannot afford to let automakers implode, some analysts argue. While the market may regulate itself - and the privately owned Chrysler could well fall by the wayside, leaving the U.S. with just two domestic automakers - the economic tentacles of an auto industry meltdown are too deep not to help otherwise viable companies get back on their feet, they said.

“It’s distressing, but I think the cost if we just walked away and let the cards fall where they may is wrong. Too many things are intertwined,” said Peter De Lorenzo, a Detroit-based auto industry analyst who publishes the Web-based magazine autoextremist.com.

“The hard road ahead is trying to manage this thing and dole out money when you absolutely have to keep things from really going south,” he added. “You just have to hope that when the turnaround comes, that these companies will be in a better position to take advantage of it.”

Mr. De Lorenzo said he expects that the team President Obama has assembled will be tough on GM in an effort to get more out of bondholders and the United Auto Workers union. In the long run, however, losing our ability to manufacture things within our own borders would be wrong for the nation, Mr. De Lorenzo said.

“We can’t just exist as a Starbucks nation of zombie consumers,” Mr. De Lorenzo said. “We have to retain the ability to make things. I think the Obama administration knows that we cannot lose this ability to create and develop our own technology.”

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