Can the Government Revive the U.S. Auto Industry?

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The American auto industry has definitely seen better days.  Last year, 400,000 auto workers lost their jobs, which has hit states like Michigan especially hard.  While the federal government hopes to put the American industry back on the road to recovery, there are some definite hurdles towards achieving this objective.

President Obama blames the current state of the auto industry on "a failure of leadership," and says that "now is the time to confront our problems head-on and do what's necessary to solve them."

What's his proposed solution?

Last year General Motors and Chrysler were given "emergency loans" contingent on the fact that they provided the government with in-depth restructuring plans.  The companies submitted plans, but according to the president, "neither goes far enough to warrant the substantial new investments that these companies are requesting."  As a result, they'll have a limited time period to come up with a better restructuring plan.   

The president says the restructuring will require more sacrifices from creditors, unions, and other stakeholders, but "only then can we ask American taxpayers who have already put up so much of their hard-earned money to once more invest in a revitalized auto industry."

As part of GM's restructuring, GM President Rick Wagoner stepped down today, under heavy political pressure.  Obama says, "This is not meant as a condemnation of Mr. Wagoner, who has devoted his life to this company; rather, it's recognition that it will take a new vision and new director to create the GM of the future."

Somehow, if I were Wagoner, I don't think these words would make me feel any better about my performance.  How is an alleged inability to "take a new vision" anything less than "a condemnation?"  Granted, Wagoner's in far better financial shape than most of the other hundreds of thousands of auto workers who have lost their job, but it probably doesn't make this public ousting any easier.

The president says Chrysler's restructuring is a bit more challenging, and he hopes that Chrysler and Fiat will be able to strike a deal that will make Chrysler more viable.  If they can't get something to work, then "we will not be able to justify investing additional tax dollars to keep Chrysler in business."  It will be interesting to see how this evolves over the next 30 days.

Other options include using the bankruptcy codes, and implementing the president's four steps.  These include using the Recovery Act funds to purchase cars, increasing credit flow to car buyers and dealers, giving tax incentives to people who purchase new cars, and "modernizing the auto fleet" through a Congressional program.

Obama reassures the public that buying GM or Chrysler cars "will be safer than it's ever been.  Because starting today, the United States government will stand behind your warrantee."

Will the thought of having the federal government standing behind the warrantee of an American-made car reassure the American public and boost car sales?

That question will probably remain unanswered for a while, since it's expected that it could take significant time for the car industry to turn around.  On the one hand, it could reassure consumers, but on the other hand, it could make them wary of buying cars from companies with so many governmental strings attached.

Disagreements on the merits of this proposal and the nature of the auto industry bailout will continue, but for the sake of the hundreds of thousands of laid-off workers and the health of the nation's economy, most agree that they hope the situation improves soon.

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