This article first appeared in the St. Louis Beacon, March 30, 2009 - President Barack Obama is driving a hard bargain with his approach to General Motors and Chrysler, but it could pay dividends for the U.S. auto industry if the companies respond in the right way.
That was the view of economists and others Monday in reaction to the administration's move to set deadlines for the two automakers to restructure their own operations or be forced into "surgical" bankruptcies that would reform the way they do business.
"I think he's trying to take a middle road," said Saint Louis University economics professor Jack Strauss, "between giving them too much and having the taxpayers responsible and being too hard on them.
"Obama is taking a stern father approach. He is making it very clear that he doesn't want the car companies going bankrupt. But they know they better get their act together; otherwise, they will enter bankruptcy. These players have been behaving like little kids. It's taken 20 years of yelling at them, and they haven't budged too much."
In addition to forcing GM head Rick Wagoner to resign and strongly suggesting that Chrysler reach an agreement for working with Fiat, President Obama's administration also said Monday that the companies need to come up with survival plans that help them keep good assets and shed bad ones.
That approach makes some sense, so long as everyone acknowledges that whatever pain is involved must be shared, said Washington University professor Stuart Greenbaum.
"Every stakeholder here is supposed to take a haircut -- the bondholders, the unions, the dealers," Greenbaum said. "The reason they haven't done it so far is that they believe the government will bail them out. That's precisely the argument for them go to into Chapter 11."
After the government bailout of major players in the financial industry, a similar arrangement for the automakers might have been expected as well. But Greenbaum noted that such a move would have sent the wrong message. Having key banks go under would hurt the general economy far more than the failure of the auto industries, he said.
"The pretext for helping the banks is that there are presumably systemic implications if they fail," he said. "I don't know that anyone argues the same thing for the auto industry.
"There is a point where you do draw the line. Then the question would become, should we bail out the airlines? Should we bail out the real estate investment trusts? It becomes a slippery slope. The weight of economists' thinking would be against a bailout of the auto industry."
Ideally, the Obama plan will help make Chrysler and General Motors competitive without public subsidies, said Christopher Chung. He heads the Missouri Partnership, which is involved in recruiting businesses to the state. He also has been named chairman of Gov. Jay Nixon's Automotive Jobs Task Force, which is designed to help the state's auto plants and the businesses that serve the industry.
To survive, Chung said, GM and Chrysler "have to do more than just pare costs.
"Everyone is talking about the financial pressures they will have to resolve. But a lot of it is about manufacturing the right kind of product. They will have to develop new products for survival, and there are going to be opportunities there for Missouri to cash in on. The mission of our task force will be to tap into those types of developments that will result in jobs."
To Strauss, the problem is as simple as the minivans that have rolled off the line at the Chrysler assembly plant in Fenton. "It's very clear that this is not the kind of vehicle that is the car of the future," he said.
Instead, he said, the U.S. automakers have to become more nimble, like those in Japan, to produce and market the kinds of cars that the public wants.
One vocal opponent of that view is longtime car dealer Dave Sinclair. He has been spending a lot of time -- and money -- advertising his personal view that touts the advantages of buying American when it comes to cars. He calls the Obama approach "100 percent wrong. He's another automobile expert who knows nothing."
Sinclair says the U.S. automakers have been placed at a competitive disadvantage for years by foreign cars that come into this country without a tariff, while other countries make it difficult to sell American vehicles in their markets.
He also blames the media for what he says is its refusal to spread the word that the U.S. auto industry makes cars that are every bit as good as those from overseas.
"I think 75 percent of this is caused by the media and the government," Sinclair said. "They have beaten us to death; now they want a task force to run our companies. They want us to build hybrid cars, but Toyota has never made any money from the Prius. They want us to pay back a loan building a car that has never made a profit.
"As part of a requirement for a jobs stimulus package, we have to lay off 100,000 people. Does that make any sense to you? I guess they're well-meaning people, but they know nothing about the automobile business. Who is giving him his advice?"
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President Obama declared Monday that "we cannot, we must not, and we will not let our auto industry simply vanish." Earlier, White House pressure forced out GM head Rick Wagoner and gave Chrysler 30 days to join forces with Fiat. The moves amount to some of the deepest government intervention in private industry since the economic crisis began. Bankruptcy is still a possibility. | Wall Street Journal
Wagoner had led GM since 2000 as its stock price fell from $70 to $4. Michigan's governor echoed sentiment that he may be seen as a martyr. | New York Times
GM CEO leaves with $20 million retirement package. | ABC News
News on autos and banks drives stocks to biggest drop in three weeks. | Bloomberg