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First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

Car Makers say Bailout a Defense Issue
November 20, 2008
Associated Press

WASHINGTON - In an increasingly anxious campaign for a $25 billion government rescue, Detroit's Big Three car makers and their allies in Washington are warning the demise of the auto industry will damage U.S. national security.

That argument is a hard sell.

General Motors Corp., Ford Motor Co. and Chrysler LLC long ago exited the defense business. While many of their suppliers also make the parts used on military vehicles and would be hit by the wave if one of the Big Three collapsed, defense experts see little immediate risk to the armed forces beyond paying higher prices.

"It's a stretch, quite frankly," said retired Army Lt. Gen. John Caldwell, chairman of the National Defense Industrial Association's combat vehicles division. "I think they're grasping at straws."

Chrysler's chief executive, Robert Nardelli, told the Senate Banking Committee on Tuesday that a crippled auto industry "would undermine our nation's ability to respond to military challenges and would threaten our national security."

Auto executives are scheduled to testify before the House Financial Services Committee on Wednesday.

In a video posted on the Web earlier this week, General Motors said a devastated domestic auto industry would not just be an economic catastrophe "but a serious threat to national security." In the event of a major international conflict, the U.S. would have to rely on foreign companies to manufacture military equipment, the company said.

On Sunday, retired Army Gen. Wesley Clark pointed to the rapid production of mine-resistant, ambush-protected vehicles as evidence of what a healthy domestic automotive sector can do on short notice. Thousands of the so-called "MRAPs" that protect U.S. troops from roadside bombs have been built in the last few years and sent to Iraq, Clark wrote in The New York Times.

Sen. Carl Levin, D-Mich., the influential chairman of the Senate Armed Services Committee, said the defense market alone isn't large enough to sustain most auto parts suppliers, making a strong commercial industry key to their survival.

TRW Automotive Holdings Corp., which also supplies parts for heavy-duty trucks used by the U.S. military, warned investors Oct. 30 in U.S. securities filings that the economic meltdown could further damage the auto industry, which could hurt its own sales or profit margins.

Cummins Engine, which makes diesel engines for the military, said it sells roughly 8 percent of its engines to Chrysler for use in Dodge Ram trucks. Cummins told investors in February that a decline in Chrysler truck production could hurt its sales.

And Detroit's research and development of batteries, alternative energy vehicles and lightweight materials all hold promise for the military. "These technologies are being developed primarily for the commercial industry, but can also help our troops in battle," Levin said Tuesday.

But the Big Three automakers had no role in making the hulking MRAPs, and the most innovative automotive technologies are coming from Toyota and Honda, not Detroit, said Dakota Wood, a retired Marine Corps officer and a military analyst at the Center for Strategic and Budgetary Assessments in Washington.

"Is it in our best interest to have a robust commercial automotive industry? Absolutely," Wood said. "Would we prefer to have domestic innovation and production advantages? Of course. But I think the argument of propping up the Big Three as a national security imperative is marginal at best."

When the Pentagon needed MRAPs in a hurry, it turned to traditional defense companies like Force Protection in South Carolina, BAE Systems of Sealy, Texas, and General Dynamics Land Systems in Canada. Similarly, the Army and Marine Corps are buying a vehicle to replace the venerable Humvee and awarded contracts to manufacturers with heavy experience building military trucks.

"The defense sector has become so specialized that much of it is completely separate from the commercial sector," Wood said.

Democratic congressional leaders want to tap the $700 billion Wall Street rescue package for new loans to U.S. automakers and suppliers. But the White House and Republican lawmakers object. Instead, Republicans propose diverting $25 billion approved by Congress in September - intended to help auto manufacturers retool their factories so they can make more fuel-efficient vehicles - to cover the firms' immediate financial problems.

Auto executives and their supporters in Congress said another $25 billion in emergency loans is needed to prevent one or more of their companies from going under before year's end. That would mean $50 billion in total federal aid.

Treasury Secretary Henry Paulson told Congress on Tuesday the administration remains opposed to using the financial bailout fund for the auto industry. At the same time, Paulson testified, "It would be not a good thing" if one of the auto companies failed.

Had we seen this Romney maybe he would be president now.

moksha wrote:Maybe Ford or GM could get a contract retrofitting Hummers with heavy armor.