U.S. automakers, reeling from the credit crisis and sudden drop in sales, appears likely to get some help from the U.S. government to stave off bankruptcy. After initially declining to offer help to Detroit in its last two months on duty, the Bush Administration now appears willing to go along with a $15 billion bridge loan.
But as two days of hearings before the House and Senate made clear last week, Washington will not be writing a check without attaching some hefty strings. As a result, cars produced by a "bailed out" Detroit are likely to be a different breed than what's being offered today.
The incoming Obama administration supports federal help for the automakers, but has made clear that it expects a major restructuring in the way the companies do business and in the kinds of cars they made and sell.
"What we can't give is a blank check for an industry that isn't prepared to reform itself, to rationalize itself, and to retool for the markets of today and tomorrow," said David Axelrod, who as Obama's senior advisor has the president-elect's ear.
Obama, appearing on NBC's Meet The Press Sunday, suggested some auto executives should lose their jobs and also said government aid to the automakers would be contingent of big changes in Detroit.
"They're going to have to restructure," the president-elect said. "If they expect taxpayers to help in that adjustment process, they can't keep putting off the kinds of changes that they, frankly, should have made 20 or 30 years ago."
Part of that restructuring could potentially turn the "big three" automakers into the big two. Some members of Congress — in particular Sen. Robert Bennett (R-UT) and Sen. Bob Corker (R-TN) pressed executives for GM and Chrysler to renew merger talks.
"Our country can't really deal with three separate automakers," Corker told the executives.
The Chrysler brand might survive a merger with GM, but it's likely many current models would not. Congress appears likely to press the carmakers to get rid of the least-profitable lines.
There will be changes to GM as well. In its recovery plan delivered to Congress last week, the nation's most cash-strapped automaker said it would reduce name plates and slash dealerships by 1,750 within three years. It said it would concentrate on core brands like Chevrolet, Cadillac, Buick and GMC, and might spin off or close down its Saab, Hummer, Saturn and Pontiac brands.
One plan being floated in Congress late last week included the creation of a special government "oversight board" made up of five U.S. cabinet secretaries and the administrator of the Environmental Protection Agency (EPA). The board would be led by a "car czar" appointed by the president. Presumably, this board could have a large saw in the kinds of products Detroit produces.
With Democrats controlling both the White House and Congress next year, an automotive bailout might also require U.S. carmakers to turn out fewer trucks and SUVs and more fuel efficient vehicles. And U.S. carmakers might not balk at that.
James Malackowski, president and CEO of Ocean Tomo LLC, a Chicago bank, says Detroit automakers are already well ahead of their international counterparts in that regard. Writing in the Detroit News, Malackowski says Ford and GM hold about one-third of all "green technology" patents.
So, even with gasoline prices at 2005 levels, carmakers are still on course to phase out gas guzzlers and produce vehicles that will dramatically reduce U.S. energy demand in the future.
In fact, Malackowski argues that allowing the car makers to fail could serve as a significant setback for future development of green technologies. Even though polls show Americans are overwhelmingly opposed to spending more tax dollars to "bail out" another industry, Congress — led by the Ohio and Michigan delegations — appears determined not to let that happen.
"I think it's a good investment because it's not taxpayer money for the automobile industry, it's taxpayer money for America, it's for the working families," said Rep. Charles Wilson (D-OH).