GM employs 142,000 workers in the U.S. and roughly 19,000 in Canada’s six plants, but as many as three million jobs are connected to the Detroit car companies, according to the Center for Automotive Research. Deciding which plants to save and where will be a nightmare, not to mention highly political. If a bailout does materialize, Canada will have to follow along if it hopes to maintain its share of the auto industry. “You’ve got to believe that the U.S. government will insist that its tax dollars be used for U.S. plants and U.S. workers. Canada has to recognize that it has to play a similar role,” says the CAW’s Lewenza. That’s what the Detroit Three are now asking for, which could mean a handout of more than $3.5 billion from Ottawa and Ontario.
There’s no question letting GM sink would be painful, but others argue it wouldn’t necessarily ruin the entire auto industry. To start, there is enough inventory out there to meet current demand for cars, says Faria. And as the market recovers, other foreign automakers, from India’s Tata Motors to Hyundai, could come in and pick up the slack. The question is, how much does it matter if the industry is foreign or domestically owned?
Many argue it matters a lot, and that killing off GM would be a colossal mistake. The North American industry, while down and out at the moment, is still a key segment of the American economy. “There’s nothing as complicated as a car that challenges as many industries and raw material manufacturers and component manufacturers,” says Keller. Losing it would cost more than jobs. While foreign-owned plants would still exist, they don’t contribute the same kind of technical know-how to the domestic economy. “The fact that you have a Honda plant in the U.S is irrelevant. You might as well have a toaster assembly plant,” adds Keller.
The big auto companies remain the foundation of many local economies. If GM fell, parts companies like Johnson Controls and Magna would have to lay off huge numbers of workers. Everyone from ad agencies to restaurants across the street from GM plants would suffer, says Faria. “We could easily see 700,000 to 900,000 people out of work” across North America, he says. All this would add fuel to the current economic wildfire—putting more pressure on the housing market, regional banks, and the service sector. In these already depressed rust belt regions, there are no clear options for workers who’d find themselves suddenly out of a job, not to mention the 775,000 retirees that depend on the automakers for their pensions. Those pensions could fall short, even if governments are forced to pick up part of the tab.
It’s unlikely that without a bailout GM can survive. Even bankruptcy protection might not be an option because of the difficulty in financing a restructuring plan, analysts say. That leaves liquidation as the final option. GM, and possibly others, would be forced to close up shop and sell their assets—a fate that would represent a calamity for hundreds of thousands of people. Just as government had a responsibility to the people of New Orleans after Katrina, there’s an argument that politicians have an obligation to help Detroit, Rubenstein argues. On top of all this, there’s the question of national security and energy independence, he adds. A bailout is likely to be tied to energy efficient cars like the Volt, which could have wide-ranging benefits for a country that has long talked of weaning itself off of foreign oil.
Even if GM survives, however, it will almost certainly involve ditching the current management. “Every single one of them has to go,” says Keller. GM’s Wagoner has overseen a staggering $73 billion in losses since 2005 alone. Starting fresh with new leadership is the only way to ensure that the same mistakes aren’t repeated yet again, she says.
The irony is that Detroit is being pushed to the edge just at a moment when it seems to be re-establishing its reputation for quality and design. Reliability ratings for most North American models are improving and critics actually like many of Detroit’s latest models again. Motor Trend named GM’s Cadillac CTS the 2008 Car of the Year. That car, along with the Chevy Malibu and Corvette, was also in Car and Driver’s 10 Best Cars ranking. The industry has enjoyed years of labour peace, and the 2007 contract agreements with the United Auto Workers in the U.S. were hailed as a significant step toward making American carmakers competitive again. Finally, they seemed to have regained their focus on the cars themselves.
But even with all that wind at their back, analysts say a full turnaround could still be half a decade away at least, and the Detroit Three don’t have that kind of time. They also don’t have history on their side, notes Heitmann. Starting back in the 1960s, the British government struggled to prop up its auto industry, intent on maintaining its place in the global auto trade. Britain faced many of the same challenges as Detroit, from weak management to rising competition. “Yet in the end it didn’t work,” says Heitmann. Famed brands like Jaguar and Rover received millions in aid, but in the end they succumbed to rivals. Those iconic names survive only as bit players, and small subsidiaries of foreign rivals. Any bailout in North America will have to be incredibly well-conceived and deftly-handled, he says. “I think problems are always solvable. But this problem is so huge one wonders. Is it solvable? Let’s hope.”
—With Duncan Hood
