KEY POINTS:
For more than a century, car manufacturing has helped to define the United States as an economic power. The assembly lines of Detroit were a ringing testament to America's technological ingenuity, expertise and industriousness. No more. The chiefs of the Big Three carmakers - Ford, Chrysler and General Motors - have had to clamber on to their corporate jets and go cap in hand to Washington to save their companies from collapse. They want a US$25 billion ($46.2 billion) bailout. President-elect Barack Obama has urged President George W. Bush to extend support. Few Americans, however, appear to share his eagerness - and with good reason.
One concern is that the carmakers' pain is largely self-inflicted. Their chief executives like to point the blame at choked credit and a sharp slump in sales as the economic slowdown bites, but this deflects attention from bad decision-making. For years, they have focused on producing petrol-guzzling trucks and four-wheel-drives and opposed tougher fuel-efficiency regulations. This, Chrysler chief Robert Nardelli told Congress, was a response to "customer demand". But Toyota, Hyundai and other foreign companies that manufacture in the US did not make the same mistake. They concentrated on fuel-efficient cars and workplace productivity. They also did not allow themselves to be burdened by the Big Three's lavish wage bills and benefit packages.
A bailout of the car industry would not, of course, be unprecedented. Already, insurer AIG, investment bank Bear Stearns and mortgage companies Fannie Mae and Freddie Mac have been handed US Government lifelines. They could not be allowed to fail, it was said, because they were integral to the country's economic wellbeing. A similar argument is being advanced by the carmakers.
They say their collapse would ripple through the economy destroying hundreds of thousands, perhaps millions, of jobs just when another shock could least be afforded. But companies that have allowed themselves to become lumbering dinosaurs present a far less compelling case than the earlier bailout subjects. Their rescue would raise new questions. All manufacturers of big-ticket items face a struggle over the next couple of years. Who, it might be asked, will be next to beat a path to Washington demanding federal aid?
One option would be to allow the Big Three to seek Chapter 11 bankruptcy protection, similar to airlines that later emerged restructured, leaner and stronger. The danger there is that they may not emerge and the field would be left to foreign carmakers. The impact on manufacturing and blue-collar workers in Michigan and Ohio would be catastrophic. Foreign-owned plants elsewhere in the US may absorb some of the labour but they would not require much of the technological and engineering know-how that underpins the American industry.
The social consequences, in particular, suggest that some form of financial help will eventually be delivered to the carmakers. Congress jibbed when first confronted by the US$700 billion Wall St bailout programme. The public response to its hesitation caused a rapid rethink. At the moment, similar stalling has been initiated by the Republicans in Congress, and a similar scenario is likely to played out.
If the Big Three are to be rescued, however, they must be required to adopt a new and sustainable business model. Finally, they must focus on competing against their foreign rivals with smaller, more fuel-efficient cars. Boards and chief executives will have to be replaced, and union contracts will have to be rewritten. Only with these 21st-century terms and conditions will a once-proud industry have a future.
