President-elect Obama yesterday asked President Bush to throw a lifeline to the battered U.S. auto industry. House Speaker Nancy Pelosi also called for “emergency and limited financial assistance” for auto makers and suppliers, introducing legislation to make the big three automakers eligible for help under the $700 billion Congressional bailout passed last month. The move followed disastrous third-quarter losses reported by Detroit’s Big Three: General Motors, Ford and Chrysler.
Prior to its election break, Congress passed legislation providing $25 billion in government-backed loans to automakers to help them retool for the production of more fuel-efficient vehicles. Since then, the Big Three and United Autoworkers officials have asked for an additional $25 billion to keep the automakers afloat and a further $25 billion to fund future healthcare payments to 780,000 retirees and their dependents. Legislation currently being written in the House and Senate is expected to severely limit executive compensation and demand vigorous federal review in exchange for bailout funds.
Critics say Detroit is suffering from decades of short-sightedness and poor decision-making. In iterating the missteps that have led automakers to the edge of bankruptcy, critics cite the auto industry’s failure to invest in new products, failure to aggressively pursue fuel-efficient cars, failure to meet the competitive challenge of Asian imports and failure to take on growing union demands.
“There’s been 30 years of denial,” said Noel Tichy, a University of Michigan business professor, author and auto industry consultant. “They did not make themselves competitive. They didn’t deal with the union issues, the cost structures long ago, everything that makes a successful company.”
Tichy says the auto industry’s problems started in 1980s when Toyota and Honda mastered the production of reliable, fuel-efficient cars. Detroit, unfortunately, failed to see this as an omen of future trends. Cheap gas and a strong U.S. economy made Detroit blasé about the public’s fledgling interest in ecology and “green” lifestyles. Driven by high profits and consumer demand, the Big Three automakers continued to invest in the traditional “bigger is better” model, flooding the American market with luxury vans, trucks, SUVs and the ultimate example of overindulgence, the Hummer.
By the 1990s, Detroit had effectively ceded the small and midsize car markets to Toyota and Honda. When fears of global warming, pollution and high oil prices began to gain affect public opinion and buying habits after the millennium, U.S. automakers were caught unprepared. Skyrocketing fuel prices over the past year sent sales plummeting and sealed their fate. Coupled with a recessive economy and tight credit, failure to address future trends has driven the U.S. auto industry to the brink of extinction.
Next time: Hope for the future: Changes that will redefine the U.S. auto industry