If the auto industry goes, remember ‘The Road’

November 20th, 2008 at 08:04pm Annette LaCross

Published Nov. 17:

It is only a matter of time, I suppose, before the Bush administration steps in for another rescue of Detroit’s collapsing automakers. At this point, the only question is how much it will cost us.

The companies first received a mere $25 billion loan. But, as it turns out, they need more than that. And they need it right now.

They’ve since upped the ante to $75 billion, plus permission to tap into the government’s $700 billion bailout money.

Not that they don’t have reason. General Motors Corp. is hemorrhaging money, reporting a $2.5 billion loss and a cash burn of $6.9 billion in the third quarter — and offhandedly remarking that it could run out of money before the end of the year.

Privately held Chrysler LLC, for which its parent, Cerberus Capital Management, has been shopping for suitors, is doubtless in similar shape.

Ditto Ford Motor Co, which reported a mere $129 million quarterly loss but managed to burn through $7.7 billion in the quarter, although a massive loan it clinched last year puts it in a slightly better cash position than its crosstown rivals.

Into this fray steps the Center for Automotive Research.

The Ann Arbor, Mich.-based industry research group, which gets part of its funding from the automakers, wanted to know what would happen if two or all three of Detroit’s automakers folded.

“The circumstances are such that either of these scenarios is possible, and indeed one or the other is probable, within the next 12 months,” according to the report.

What comes next reads like Cormac McCarthy’s “The Road” written for auto industry analysts. Presumably without the cannibalism.

Consider:

If all three Detroit automakers go under, the first-year employment hit would be a loss of nearly 3 million jobs in the U.S.: 239,341 at the automakers, 973,969 at supplier companies and more than 1.7 million others who would suffer without the wages of the autoworkers. By 2011, the net job loss will have been reduced to 1.8 million because of increased U.S. production by foreign automakers and dislocated workers finding new jobs.

If just one or two of the companies fails, the first-year U.S. job loss would still approach 2.5 million before coming back somewhat in the second and third years. That’s because the domino effect of one major automaker going under would push several financially fragile auto suppliers under, interrupting production at the remaining companies, including foreign-owned automakers.

The loss of one or two companies also would reduce personal income by more than $125.1 billion in the first year and $275.7 billion over three years. If all three go, income would be reduced by nearly $400 billion.

And that’s just the first three years.

“However, it is assumed that the international producers would recover fully by the third year” and will have taken over about a quarter of the Detroit automakers’ production. Otherwise, the report says, the surviving domestic automakers would resume production of at least 50 percent of the pre-apocalypse era.

The report, issued on Election Day (which, I’m sure, was just a coincidence), is breathtaking, to be sure.

But it doesn’t change the fact that another government bailout won’t change the domestic industry’s business model.

And it just plain doesn’t work.

They’re still hamstrung by a slew of federal and international regulations, to which they have adapted only clumsily. They allowed themselves to be held hostage by the United Auto Workers and for years kowtowed to the union’s extravagant, sometimes-to-the-point-of-comical demands.

They again gravely misinterpreted the swings of the market and were left holding a bag full of trucks when consumers — presumably we actually mean it this time — clamored again for fuel efficiency.

Could they have foreseen gas prices that rose so swiftly? I doubt it.

Should it have occurred to them that gas prices would eventually, inexorably rise? That consumers would at some point want a variety of models to meet their financial needs?

Put it this way: If it didn’t, they don’t deserve to be in business.

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