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Debate over rescuing the 'Detroit Three'

BY TOM INCANTALUPO | tom.incantalupo@newsday.com

November 18, 2008

Bankruptcy or bailout?

While some people think the Detroit Three carmakers should be allowed to fail for their years of bad management decisions, others say that a filing for bankruptcy court protection by even one of the three, which together employ 250,000 U.S. workers, would be a hit that the economy could ill afford, throwing millions out of work as the impact ripples through the economy.

"Too big to fail" is in essence the argument General Motors, Ford and Chrysler are making this week - backed by most Democrats in Washington - in seeking an additional $25 billion in federal loans, above the $25 billion already approved to help them meet upcoming new fuel- efficiency standards.

It was unclear by day's end yesterday whether Democrats had enough votes to get it approved.They want to require the automakers to cut bonuses and executive pay, give the government ownership stakes and agree to a federal oversight board. "We need to provide assistance to the auto industry," President-elect Barack Obama said Sunday on CBS' "60 Minutes." "But I think that it can't be a blank check."

The Bush White House, however, argues that the $700-billion Wall Street rescue program that would fund the bailout was intended for the financial industry.

Some Republican lawmakers, including Alabama Sen. Richard Shelby, argue that foreign-based companies will fill the gap if Detroit Three products aren't available. But others, including Rebecca Lindland, the Lexington, Mass.-based director of the autos group at IHS Global Insight, say that, while a Chapter 11 bankruptcy filing would facilitate the closure of surplus dealerships and the wrenching of more concessions from labor, the downsides would outweigh both. "There aren't a lot of pros to it," said Lindland.

The companies would be so short of cash they couldn't pay suppliers, she said. They employ more than 970,000 people. Lindland's firm estimates that a collapse of General Motors - which says it has 44 dealers on Long Island - would cost the government $200 billion in aid to states and extended unemployment benefits. Lindland and Korth argue that the Detroit Three are well along in improving product and scaling back production to their smaller market shares.

"Their problems really came about from the credit crunch," said Lindland. "People can't buy cars."

General Motors and Ford last week reported almost $7.2 billion in combined third-quarter operating losses.

This story was supplemented with Bloomberg News and Associated Press reports.

THE NUMBERS

1 in 10 Number of U.S. workers employed in the auto industry

20% Portion of consumer spending auto sales account for

$300B Amount the Big Three spend a year on equipment, supplies and parts

Vehicle and parts manufacturing jobs are concentrated in the Midwest and the South.

The top-selling vehicle in the country is theFord F-150 pickup.

SOURCE: THE ASSOCIATED PRESS, LOS ANGELES TIMES; INDUSTRY ANALYSTS; BLOOMBERG; REUTERS; CENTER FOR AUTOMOTIVE RESEARCH

DOMINO EFFECT

Ford Motor Co.'s F-150 pickup is the top-selling vehicle in America. Each truck contains 4,350 parts, made by 270 suppliers in 26 states and several foreign nations. If Ford stops making it, it's not just the company and its workers that suffer.

UNDER THE HOOD