ECONOMY - Auto Industry Deathwatch and Other Issues

"Deathwatch" by Jack Lessenberry, Smirking Chimp Blog

When someone you care about is going through their final illness, there often comes a point when you suddenly realize that they aren't going to make it. That while they may rally briefly, or have a few good moments, they are in fact going to die.

That happened for me most recently last week. But this time it wasn't my parents, or my in-laws, but the domestic auto industry.

News Flash: They aren't going to make it. Chrysler, General Motors, and probably Ford as well, are not going to make it. Not, that is, without most or all of them declaring bankruptcy and reorganizing, at a heavy cost to the taxpayers, the workers, the retirees, the unions — indeed all of us.

This hit me while I was talking with Sean McAlinden, who I have found to be about the savviest guy around when it comes to the auto industry and the numbers. That's not surprising; he is both chief economist and vice president for research of Ann Arbor's Center for Automotive Research (CAR).

I wanted to know if there had been any slight improvement in Chrysler and General Motors' situation, since they got a combined $13.4 billion in federal "loans" over the last few weeks.

Well, no. "Actually they've deteriorated further," he said, noting that auto sales in January were about half what they were the year before. The parts suppliers, who haven't gotten a penny from Washington, D.C., are in particularly bad shape. And if they stop making parts, the entire industry will soon sputter to a screeching halt, whether anyone wants to buy Detroit iron or not.

Increasingly, nobody is buying cars, even if they do have money, partly because they have either lost their jobs or fear losing them. The go-go years are gone. President Obama's stimulus plan is designed to get people hiring and spending again, but they are scared. Scared of losing everything.

"We don't see a V-shaped recovery in terms of car sales," McAlinden told me. Not this year or next. "We don't see any way they can reach huge cost savings either," he added. So they are doomed to stagnating where they are now, or worse. In times past, the car companies could just ride it out, but now, all the money is gone. Theirs — and increasingly, ours. But let's say the government is fully committed to keeping them going. How much more money will it take? "Over the next couple years? Oh, $50 to $70 billion," McAlinden said.

Seventy billion more dollars, that is, on top of what they've already gotten. Unless I gravely miss my guess, the government isn't going to give General Motors and Chrysler that much money. Not when they don't appear to be perking up. Not when we are already running the mother of all deficits, with President Obama desperately trying to kick-start consumer confidence before this turns into another major depression.

Incidentally, things took a turn for the worse at Ford recently too. Ford suddenly found out that its pension fund was underfunded, big-time, thanks to the stock market slump. What that means is that starting next year, Ford will have to put another $3 billion to $4 billion into its pension fund. Ford, which has been barely keeping its head above water, doesn't have it. Nor can the company borrow it without joining the federal bailout train.

For years, the experts have said that declaring bankruptcy — even the kind that's meant to give you a breathing space while you organize and prepare to become more competitive — would be a disaster for the auto companies. The reasoning was that it just wouldn't work, because people, afraid they could never get parts and service, wouldn't buy a car from a bankrupt auto company.

Well, guess what? They aren't buying cars from these automakers now, not in numbers sufficient to sustain their survival.

I could be wrong about this. But what I do know is that Chrysler and General Motors have retained law firms who are experts in the arts of bankruptcy filings, just in case. I also know that the Obama administration has also been taking with similar counsel.

The government and the auto companies could even be discussing some kind of creative financing arrangement, where they modify the bankruptcy rules to give them the maximum chance to succeed. I don't know, but I do know that we are in a new economic world. The effects haven't fully hit, yet, but they are going to.

The question is not whether it will be painful. It will be. What we need to do is find a way to take it, learn from it, and survive.

Memo to CNN and the Republicans: Shut up, already.

Normally, when someone loses a presidential election, or leaves office, they shut up for at least a year. See Mike Dukakis on TV lately, or ever? Al Gore, Bob Dole and John Kerry all decently vanished soon after their defeats. But not John McCain. President Obama beat him by a record margin for a non-incumbent — nearly 10 million votes. The people spoke, and they clearly did not want Arizona Johnnie.

Yet there he is, yammering every night. He needs to be ignored, other than perhaps by the nursing home network.

Incidentally, medical science needs to come up with a name for the disease that causes people to blow things out of proportion by watching too much cable news. For the last two weeks, it gave the general impression that the Obama administration was a failure.

Except he just got his massive stimulus bill passed, pretty much exactly as he wanted it. Unfortunately for the broadcast media, some things deserve to be considered for more than nine seconds.

What is true is that Obama should, by now, have learned his lesson about Republicans. No president in modern memory has done more to reach out to the opposing party in a quest for bipartisan cooperation, and none has been so thoroughly dismissed. That is largely because the GOP today is little more than a cranky band of party hacks and inconsistent ideological fanatics.

Why inconsistent? Not one House Republican was willing to vote to support the stimulus package. But vast lots of them rolled over to vote for Dubya's Wall Street bailout, which vanished without a trace, or a trace of accountability, into the bankers' wallets.

The best thing that could happen to today's GOP is defeat after defeat. Eventually something, if only a dull instinct for survival, may click in their primitive brains.

Whatever you do, vote against Matty Moroun: The first of Detroit's many mayoral elections is Tuesday. I won't vote, by the way, mainly because I don't live in the city. Nor do I feel it would be proper for me to suggest who to vote for, though it does seem to me that Freman Hendrix has an edge in executive experience and government financial savvy.

However, nobody should vote for anyone who doesn't proclaim that they will start getting tough with the city's No. 1 slumlord, embarrassment and bad actor, Manuel "Matty" Moroun.

Best known for trying to sabotage efforts to build a new international bridge, Matty last week blamed homeless "trespassers" for the frozen corpse in his Roosevelt warehouse. "What can I do?" the billionaire whined to The Detroit News. Any decent mayor would tell him: Fix up or tear down those buildings, or face fines, lawsuits and, hopefully, jail.