Editorial -- In Return for Aid, Detroit Must Deliver a New Business Model

Thursday, December 4, 2008

THE WOLF is at the door. The day of reckoning has dawned. Whatever cliche you choose, it is clear that two of the nation's Big Three automakers, General Motors and Chrysler, are all but bankrupt and will have to make that status official unless Congress lends them billions of dollars this month. Ford is in better shape, but its chief executive, Alan R. Mulally, told The Post yesterday that his company might have to declare bankruptcy if one of his competitors does. No doubt a Big Three collapse would be disastrous for the economy; the U.S. government should help prevent that if possible. All three companies have downsized, cut costs, improved productivity and raised quality to a greater extent than their critics sometimes recognize. Yet the question remains: Will the automakers -- and their labor union partner, the United Auto Workers -- embrace the truly radical changes without which a federal bailout will simply postpone the inevitable, and upon which any aid must therefore be strictly conditioned?

Given the companies' presentations to Congress, and some UAW concessions announced yesterday, the answer is: maybe. Ford argued, plausibly, that its restructuring plans are ahead of GM's and Chrysler's, so it may only need a $6 billion backup line of credit, plus $5 billion in retooling loans from an already-approved $25 billion federal fuel-economy program. Chrysler, meanwhile, seeks $7 billion (on top of $6 billion in energy-retooling loans) to keep the lights on through the new year; in the long term, though, it seems headed for a merger, probably with a foreign competitor.

That leaves GM, the largest and most pivotal company. In return for up to $18 billion in aid, the company offers some changes long recommended by analysts: trimming its duplicative brands and dealerships; renegotiating up to half of its $66 billion debt; seeking further concessions from the UAW; slashing payroll. But as drastic and painful as these steps would be, they do not go far enough. If GM does reduce its dealerships to 4,700 by 2012, as it promised yesterday, it will still have almost four times as many as Toyota. It suggested going from eight brands to five by unloading Hummer, Saab and Saturn, but it still plans to keep 40 of today's 48 models. Disappointingly, but not surprisingly, the GM plan contains no hint at a change in management; in contrast to Ford and Chrysler, which are headed by newcomers, GM's top cadre has presided over years of decline. GM's board might find that acceptable, but if taxpayers are going to invest in GM, they are entitled to ask whether this is the right team to revitalize the company.

As for the UAW, it pledged to "suspend" the notorious "jobs bank," which pays laid-off workers nearly full wages and benefits, and to allow the Big Three to defer payments to a union fund that is supposed to take over worker and retiree health care by 2010. This, too, is a step in the right direction but not a big enough one. The current collective bargaining agreement calls for the Big Three's labor costs to match those of U.S.-based foreign automakers a year from now. The union needs to help make that happen sooner.

The sad fact is that, no matter what the companies, union and federal government do, the U.S.-owned automakers are in for very tough times. Thousands of jobs are going to be lost, many never to return. And even with federal aid, one or more of the companies may not make it. But if the Big Three and the UAW are to have any chance of survival, there is no alternative to a swift and far-reaching overhaul of their business. Congress must continue to insist on one.

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