Barry Hirsch comments on the U.S. auto industry turnaround plans
Is there a future for the U.S. auto industry?
ATLANTA—With U.S. auto sales plunging, General Motors Corp. and Chrysler face a Tuesday deadline to submit turnaround plans to the federal government about how they will achieve solvency and long-run viability.
Barry Hirsch, W.J. Usery Chair of the American Workplace and professor of Economics at Georgia State University, says great uncertainty will remain regarding the government’s role in the restructuring, the costs to taxpayers and future outcomes in the industry. The Obama administration, which named a task force to oversee the restructuring of the auto industry Monday, has set a March 31 deadline to decide whether GM can keep the $13.4 billion and Chrysler the $4 billion the government lent them in December.
“The structural problems faced by the industry are simply too severe and the worldwide recession too deep to know how events will evolve,” Hirsch said. “And because public policy is not immune to political pressures, the uncertainty will be compounded. My hope is that any government-guided bankruptcy process attempts to mimic standard bankruptcy principles and procedures, while holding political influence to a minimum. This will not be the last time large companies become bankrupt, so precedent matters. What must and will emerge is a smaller and far more competitive automotive industry in the U.S.”
Although the Detroit Big 3 have responded by gradually downsizing, improving quality and productivity, and reducing future wage and benefit costs, Hirsch says thousands of jobs will be shed, numerous plants and dealerships closed, wages and benefits cut and debt payments reduced.
“The pain will be spread widely between current workers, retirees, shareholders, bondholders, dealers, suppliers, and probably taxpayers – in short, to communities throughout America,” Hirsch said. “Regrettably, it is too late for this comprehensive restructuring to take place through negotiation and voluntary agreement among the stakeholders. Such restructuring can occur only through bankruptcy or bankruptcy-like proceedings.”
Restructuring is likely to reinforce longer-run trends in the automotive industry, such as smaller market shares for the Big Three and an increase in market shares among foreign owned assembly plants in the U.S. that are largely nonunion and outside the Midwest.
“We will continue to see technological change, increased productivity, enhanced quality, and a growing importance of worldwide markets,” he said. “The automotive industry cannot return to the iconic Detroit-centered glory days that emerged following World War II, but it will remain a large U.S. employer at the core of the U.S. industrial sector.
To speak with Hirsch, contact Leah Seupersad at 404-413-1354 or lvh@gsu.edu.