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Ford reported a $2.9 billion lost in the third quarter, the company burning through $7.7 billion in cash. Its sales in this country declined 30 percent in October, and Ford isn't the most troubled carmaker. General Motors suffered a decline in American sales of 45 percent last month. The company lost $4.2 billion in the third quarter (excluding a one-time gain). Estimates are GM will run out of the cash necessary to operate its business in the first half of next year.
Conditions are the same at Chrysler. Automakers face slumping sales in the midst of a deteriorating economy, tight credit markets preventing some consumers from obtaining loans to buy cars. In response, the Big Three continue to slash costs. On Friday, Ford announced a 10 percent reduction in salaried payroll and lower capital spending. All told, the companies have cut more than 100,000 jobs and closed dozens of factories the past two years.
Should Washington come to the rescue?
One answer is no. If General Motors runs out of cash, the argument goes, let the company proceed into bankruptcy, where it will be forced into an overdue restructuring. The thinking is that bankruptcy would lead to the company to confront fully issues long evaded, such as the burden of health and pension benefits, the oversized networks of dealerships, the pay packages for the United Auto Workers (in comparison to those at the American plants of foreign manufacturers). None of these steps is easy, yet each is indispensable to make the American industry more competitive -- and profitable.
The trouble is, automakers differ from airlines, which have flown into and out of bankruptcy with some regularity. Consider the economic impact in Ohio and Michigan of bankruptcy for an automaker, especially at this time, the overall economy headed into a recession. The auto industry employs more than 200,000 workers directly and millions indirectly in this country. The object in these conditions should be to press the companies to restructure and consolidate yet provide a cushion from the blow for workers and their families.
In other words, the correct answer is yes. Congress must help.
Make no mistake, the industry must adjust. Production has fallen from 17 million vehicles a year to roughly 12 million. Auto executives insist they just need the equivalent of a bridge loan, assistance in these dark hours as they prepare for a better day. In that way, the industry's longtime enablers on Capitol Hill must embrace tough conditions on the money provided, holding automakers accountable, ensuring they take the necessary painful steps. The auto industry is too important to fail right now.
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