Tomorrow's Auto Industry

By Ron Gettelfinger
Saturday, June 20, 2009

Chrysler's alliance with Fiat, finalized this month, creates a fresh start for the company and for tens of thousands of workers. A restructuring process is also underway at General Motors and is on track to proceed quickly.

The rapid turnarounds at GM and Chrysler are being accomplished with government involvement and because a majority of industry stakeholders agreed, in advance, to painful sacrifices.

More important, taxpayers -- who are providing billions of dollars to preserve a critical U.S. manufacturing sector -- now have a right to ask: How will this be different than previous attempts at restructuring?

Here's how:

Company creditors -- the U.S. government, bankers, bondholders and the trust funds for United Auto Workers retirees -- have agreed to swap debt for equity at Chrysler and GM, eliminating billions in liabilities. This will free up funds to reinvest in the businesses and make private investment more attractive.

The companies will also reduce their operations, achieving significant cost reductions at a severe human cost. In addition to lost jobs and tax revenue from closed plants, suppliers and dealerships, there will be broad impact in affected communities, ranging from farmers who once raised cattle to provide leather for automobile seats to lost sales, jobs and income at family-owned restaurants and groceries near closed facilities.

The companies will realize additional savings as a result of the labor agreements ratified by UAW members this year, which come on top of concessions made in 2005, 2007 and 2008. Workers have accepted frozen and reduced wages; retirees living on fixed incomes will pay higher health-care costs.

While making necessary sacrifices, the restructured domestic auto industry is now in a position to respond to critical environmental concerns. As part of new UAW agreements, GM and Chrysler committed to produce new small cars in the United States. Chrysler's alliance with Fiat will bring new fuel-efficient technologies here; Ford is producing industry-leading hybrids, and GM will soon introduce the Chevy Volt, the first mass-market electric-powered car.

These green technologies will help companies meet the rigorous national standard for fuel economy and greenhouse gas emissions put forward by President Obama. The new standard will reduce U.S. dependence on foreign oil and help combat climate change.

Domestic automakers are ready to compete. But fair competition requires a level playing field, which does not yet exist in the global auto industry.

Toyota, Honda, Nissan and other Japanese automakers, for example, sold an astounding 94 percent of all passenger cars in Japan in 2008. Korean automakers control 96 percent of auto sales in their home country. By contrast, Chrysler, Ford and GM have a combined share of less than 50 percent of the U.S. auto market.

The scarcity of U.S. vehicle sales in Asia did not come about because hardly anybody in Korea or Japan wants a Chevy, a Ford or a Jeep. It happened because Korea and Japan protect their home-country auto markets with currency manipulation and non-tariff trade barriers. The result is an artificially high price for U.S.-made vehicles overseas and a hidden subsidy worth thousands of dollars per vehicle on cars and trucks imported into the United States.

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