As featured on p. 218 of "Bloggers on the Bus," under the name "a MyDD blogger."

Tuesday, April 28, 2009

Shrinkage Of The US Auto Industry

It looks now like GM and Chrysler will avoid bankruptcy, by consolidating operations, giving stakeholders a haircut and basically shrinking the size of the American auto industry. Chrysler's biggest lenders reached a deal with the Treasury Department to accept about 28 cents on the dollar for the company's debt. Add this to their deal with the UAW forcing them to accept losses, and an imminent deal with Fiat, and the automaker will presumably meet the requirements to borrow another $6 billion in federal assistance.

As for GM, they're essentially shrinking their output, cutting brands like Hummer, Pontiac, Saab and Saturn, and closing up to 1,000 dealerships (though that's on top of what could be another 1,600). That's likely to put 130,000 people out of work at least.

Emptywheel has this to say about the GM restructuring:

That said, today's plan finally gets around to cutting the number of dealers that GM will need to cut to turn itself around--they're talking of closing 2,600 of their 6,200 dealers across the country (did I say tons more job losses?).

On a conference call with GM CEO Ray Young, I asked how they were going to pull this off--was the government going to help them get out of their contracts? As a later questioner noted, the elimination of the Oldsmobile dealers was a very costly process. Young basically said that GM now could use the Oldsmobile process as a lesson in how not to do things.

That said, Young wasn't prepared to explain how GM plans to get out of 2,600 dealer contracts without billions in costs. The government is not going to help--so this is still an area where bankruptcy would offer an advantage to GM over this restructuring. Young said the impacted dealers would be approached over the month of May, and dealers would be wound down over 2009 and 2010. One of the reasons for the big factory idling, he explaned, was to help dealers sell down stock before they closed up shop (which means dealers may be able to pay off their debt before closing their business.

I'll again point out that it makes perfect sense to shrink the part of the American auto industry that makes AUTOMOBILES, but not to shrink the companies that could make other useful durable goods; namely, wind turbines, high speed rail cars, and other factory-produced items. Why can't GM and Chrysler get in on those contracts? Why would we build up new factories instead of retooling the ones we have?

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