End of road for U.S. auto industry?

Category: Business

Although President Obama is not satisfied with the steps troubled automakers General Motors and Chrysler have taken to restructure their companies, he maintains that they cannot be allowed to fail. The President’s support comes on the heels of a rather bleak year for the once flourishing American car giants. The U.S. auto industry has lost over 400,000 jobs in the past year alone, and more losses loom on the horizon as both GM and Chrysler try to avoid bankruptcy. Even Ford, the strongest of the Big Three, reported a first quarter loss of $1.4 billion last week.

Recognizing the need for a new direction, the Obama administration has charged the newly-created Auto Task Force with supervising the restructuring of the auto industry. And over the past few months, the task force has been busy, making unprecedented government demands in an attempt to restore the once vital business.

Chrysler, which has been living off a $4 billion government loan, must merge with Fiat, cut debt and reduce labor costs by April 30 if it wants an additional $6 billion to stave off bankruptcy. Chrysler and Fiat are currently in negotiations.

A few weeks ago, the government requested that Rick Wagoner, long time chief executive officer of GM, resign — which he did. Now the Obama administration has given the company until the end of May to reach deals with creditors and unions to cut its costs or be forced into bankruptcy. In response, GM today proposed to shed 23,000 U.S. jobs by 2011, drop its Pontiac brand and reduce 40 percent of its dealer network.

The restructuring plan will give the Treasury Department, i.e. U.S. taxpayers, along with the United Auto Workers union, which controls the trust funds, an 89 percent stake in the automaker. Even with a plan, bankruptcy may still be a possibility, said new GM chief executive officer Fritz Henderson.

Despite the tough road ahead, Obama maintains that it is in America’s best interest to remain a viable competitor in the global automotive industry. The American auto industry “is an emblem of the American spirit; a once and future symbol of America’s success,” he recently said. Furthermore, he said, “[W]e cannot, we must not, and we will not let our auto industry simply vanish.”

Not everyone shares Obama’s opinion. Recent polls show that a majority of Americans don’t like the auto bailouts. But how can the United States maintain its leadership in the global economy if it no longer contributes to one of the largest world industries? If GM and Chrysler disappear, we are looking at economic devastation within the United States that will ripple around the world.

I know that many look at the overwhelming government spending and control to save supposed market-driven entities and say, “this is socialism.” But consider the other options. There are none. We are backed into a corner, and push is coming to shove.

Forget the fact that the United States currently produces the second most cars in the entire world behind Japan. Forget the fact that GM owns 12 of the 20 American car brands, and Chrysler three more. The fact of the matter is that the spirit of America is intertwined in cars. The spirit of freedom that our country is founded upon is exemplified in our automobiles. Are we really prepared to change our most fundamental quality or will we fight to keep our identity?

(Photo by James Allison III)

Tags: Auto Industry