Obama Calls US Auto Industry “Unsustainable”
President Obama today, during an online news conference, said that the US auto industry is unsustainable and that his administration would announce plans in the next few days to provide additional aid to the industry, but only if the industry agreed to accept “painful” changes to the way it does business. Obama said that the industry must accept reality and deal with longstanding problems. “That means that everybody’s going to have to give a little bit — shareholders, workers, creditors, suppliers, dealers — everybody is going to have to recognize that the current model economic model of the U.S. auto industry is unsustainable,” he said.
As President Bush had to do in December 2008 when he decided to use money from the TARP financial-industry rescue plan to save GM and Chrysler from imminent collapse, Obama said that while the aid is politically unpopular, he had to weigh the cost of the potential damage to the overall economy if GM and Chrysler, as well as all of their suppliers, were allowed to collapse against the cost of providing additional aid.
While bankruptcy remains a possibility (and with Chrysler hinting that if it didn’t get additional funds, it would be forced to use the last of its dwindling cash hoard to wind down operations for good), the President’s task force has said that “bankruptcy is not a goal.” The President himself said today that if the companies and their stakeholders are not willing to make the difficult choices in restructuring, he would not be willing to throw good [taxpayer] money after bad and would let them fail.
I’m pretty confident in saying that GM and Chrysler will agree to whatever the White House asks them to in order to live long enough to fight another day. I’m not confident, however, that even the additional $21.6 billion in loans that the companies are looking for will be enough. As I said way back in December, before a dime of auto-industry bailout money had been wired to Detroit, the bailout would happen (it did) and it won’t be enough (it wasn’t) and they’d be back for more after January 20 (they are). If the market doesn’t start ticking upward in the third and fourth quarters, the growth assumptions in GM’s and Chrysler’s viability plans will be wrong and they will need more money.
As fans of cars and the car business, let’s hope the scrappage rate (which exceeds the new-car sales rate) will eventually pull new-car sales upward so we can still have an industry to be fans of.