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EDITORIAL - Auto ultimatum: The president sends Detroit adose of tough love

Written by Susan Mannella on .

"We cannot make the survival of our auto industry dependent on an unending flow of tax dollars ... Now is the time to confront our problems head on and do what is necessary to solve them." - President Barack Obama

 

President Barack Obama sounded the right note of urgency this week when he announced his administration's intention to force a speedy determination on the future of General Motors and Chrysler, which since December have depended on government loans to stay afloat.

What the president ordered amounts to the ultimate form of tough love for management and workers alike in two of America's premier manufacturing concerns. Given what's at stake - life or death - both labor and management have been remarkably unwilling to make the quick changes necessary to give the companies a fighting chance to remake themselves.

The ouster of GM CEO Rick Wagoner as a catalyst for the deal is probably just as well. Despite bold handwriting on the wall for years, he has been content to muddle on with a product line that, while giving a recent nod to fuel efficiency, has been painfully slow to turn away from gas-sucking SUVs and hulking pickup trucks.

As Mr. Obama put it succinctly, GM "isn't moving in the right direction fast enough to succeed."

As for the workers, the United Auto Workers union should be falling all over itself to make the wage and benefit concessions GM and Chrysler need. Although the UAW has given some ground, we still see traces of its hidebound recalcitrance and brinksmanship in the face of a clear message about what's needed if many jobs are to be salvaged. Also, this is the best deal the unions will get from the labor-friendly president.

Of the two companies, Chrysler is the simpler case. Since being spun off by Daimler, it clearly is no longer viable as a stand-alone automaker but has taken the initiative to reach out to Fiat, whose product lines are complementary. (Chrysler doesn't have enough cars; Fiat lacks minivans and trucks, not to mention Jeep.)

If Chrysler can finalize a deal with the Italian automaker within 30 days, as now seems likely, the government is willing to consider lending up to $6 billion more as kind of a temporary wedding present.

General Motors presents a far harder problem. In what looks very much like an uncanny repeat of GM's 1992 crisis, Mr. Wagoner proved unwilling to make drastic changes rapidly enough to make his company viable, possibly because he and most of his colleagues have worked at GM together their entire working lives.

The president demanded his resignation as part of the price of any future aid, and Mr. Wagoner evidently agreed. In return, the government will loan GM an unspecified amount of money to get through the next 60 days, while Washington works intensely with it "to produce a better business plan."

The president broadly hinted, however, that this was likely to involve some form of cushioned bankruptcy, "to quickly clear away old debts that are weighing them down so they can get back on their feet and onto a path to success." Anticipating this, the government is guaranteeing warranties for new Chrysler and GM vehicles, in an attempt to reassure consumers that they have little to fear from buying a vehicle from the troubled two.

No one knows for sure whether the president's plan will work for either or both automakers, least of all how the companies might be structured to be in a position to ramp up production when the recession inevitably abates and motorists find they need to replace their aging and battered vehicles.

Moreover, it is no longer a sure bet that Chrysler subsidiary Jeep will survive in its present form. Still, the president's plan gives Chrysler and General Motors a fighting chance, and puts everyone involved on notice that they have to get very real, very fast.

 

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