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Auto sales stalling across the globe

Sunday, November 16, 2008 | 10:00 a.m. CST

Loory: The presidents of the (Detroit) Three American automobile makers, General Motors, Ford and Chrysler, and the president of United Automobile Workers, are now pleading for a government bailout. Should the United States government do this, or let them solve their own problems? The automobile business in many other countries is suffering as well. President-elect Barack Obama supports a bailout for the automobile industry. President Bush seems to be ambivalent. What’s going to happen?

Mark Phelan, auto critic, Detroit Free Press, Detroit, Michigan: The outgoing president seems not interested in taking any more dramatic steps. But, it is possible that at least one of the automakers won’t be around when Obama takes office without an infusion of low interest loans. It is necessary that Congress do something to make sure this downturn doesn’t take one or more of the companies with it.

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Loory:  Would bankruptcy be a better alternative in this situation than a bailout?

Phelan: The consensus among the car companies is that bankruptcy would cripple a car company because people are not going to commit to paying for something for five or six years with a company that may not be around that long.

Loory: What is the impact of the German automobile industry problems on the German economy, which is now in a recession?

Andrew Bulkeley, correspondent, The Daily Deal, Berlin, Germany: Like in America, automobiles are the biggest industry in Germany, but German carmakers aren’t in as dire straits as the Americans. The German economy has been sputtering along for the past 15 years, but has not gotten as overheated as the American economy did. Berlin does see a problem and will pass new legislation to eliminate new car sales taxes for the next six months.

Loory: American automobile makers also have plants in Germany and other places around the world. Are Ford and GM doing better in Europe than they are in the U.S.?

Bulkeley: Yes, but here they have been making the same type of car as the Germans and have the same suppliers. Opel, GM’s unit, has always been a problem child; it hasn’t been profitable in at least 10 years. Oddly enough, both Ford and Opel have come to Berlin and asked Chancellor (Angela) Merkel for money; they trying to get money out of Washington and Berlin. Other German carmakers are not asking for money.

Loory: What is the situation in Japan and how is it impacted by what is going on in the U.S.?

Leo Lewis, Asia business correspondent, The Times of London, Tokyo, Japan: The Japanese have made investments in more efficient technology over the last decade and were, until recently, reaping the benefits. Now, Nissan, Toyota and Honda in particular, are finding themselves less resilient than they expected; it is a big surprise. They have been warning the markets that profits are much lower than they led everyone to believe. Japanese cars have a reputation for being built to last longer, people keep them for longer, and the Japanese automakers weren’t prepared for the suddenness of household decisions to keep their cars for longer.

Loory: But, the Japanese automakers are doing better than the (Detroit) Three in the U.S., correct?

Lewis: The argument for a more fuel-efficient car was very strong when high oil prices started impacting household budgets. Japan supplied the technology and the answers, with Honda’s hybrid cars, for example. But, those cars are more expensive, and families have simply stopped buying.

Loory: The automobile industry in India is not having the same problems that the industry is having elsewhere around the world?

Josey John, national corporate editor, auto industry expert, The Mint, New Delhi, India: Yes, except in the last couple of months there has been a slowdown. In India, a slowdown means double-digit growth is down to single digits. The American slowdown has a small effect because Detroit carmakers have such a small market share in India. Eighty-five percent of the demand for cars here are for small cars, comparable in size to an early version of the Volkswagen Beetle.

Loory: These small cars have better gasoline mileage; are they more environmentally friendly than a typical automobile?

John: They are very environmentally friendly and fuel-efficient. It is not a market that Detroit carmakers play in.

Loory: When the presidents of the (Detroit) Three go to the White House and tell President Bush that they need a bailout to be more innovative, are they talking about building these kinds of small cars and retooling to do that?

Phelan: The (Detroit) Three have a strong case to say we understand what the problems are, we have a plan to fix them, but sales declines at this rate are going to kill everybody in America. Honda, Nissan and Toyota saw their sales go down about 25 to 35 percent last month. Nissan has started offering buyout packages to some of the workers at its American assembly plants. This is a storm far beyond the mistakes that the individual companies have made.

 

Loory:  Why have the (Detroit) Three resisted bringing back the technology that they have developed so well in Europe?

Phelan: The most fuel-efficient cars in Europe are diesel-powered, they account for over half of new car sales in Europe. Diesels don’t sell in America; they are about one and a half percent of new car sales here. The greater problem is the business decision to put their resources into developing light trucks, pick-ups, and SUV’s because they were more profitable. The (Detroit) Three decided four or five years ago that they had to offer small, extremely efficient cars, but they won’t be on the road until 2010. Had they decided to do that earlier, they certainly wouldn’t be in this big of a mess. It takes about six years between deciding to develop a vehicle and when it goes on sale, three years at a minimum. The Chrysler and Daimler merger was a classic wasted opportunity. Chrysler will end up being broken up or sold to some other automaker. GM seems to be out of the mix, both of those companies have enough problems without putting them together.

Loory: If GM does not merge with Chrysler whom might do it?

Phelan:  Renault-Nissan is interested; Hyundai might be interested as well. Fiat and Volkswagen have come up, and there are discussions with automakers in India and China. All of the automakers are suffering from this global downturn; the people who thought they might have the money to make an acquisition three months ago are re-evaluating.

Loory: The automobile industry in Korea is also having some problems, what is happening there?

Lewis:  Korea, much like the other Asian automakers, has a high exposure to the U.S. market. Also, there has been a swift debunking of the idea that Chinese demand would pick up where American demand was failing. Hyundai doesn’t have quite the same technology that will make Japanese cars more attractive in the U.S.

Loory: The problems of the automobile industry in the U.S., combined with the financial crisis and housing meltdown, all mean President-elect Barack Obama and other leaders have their work cut out for themselves.

Producers of Global Journalist are MU journalism graduate students Jared Gassen, Chris Hamby, Sananda Sahoo and Hui Wang. The transcriber is Pat Kelley.


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