The Obama administration’s efforts to turn around the nation’s stalled auto industry drew plenty of skepticism from Arizonans Monday.
Critics questioned the mixing of politics and business and doubted U.S. automakers could reduce their costs and increase their quality enough to compete successfully against foreign brands.
“The president’s statement that ‘this may give some Americans pause’ is the understatement of the century,” said Rep. Jeff Flake, R-Ariz. “A lot of nausea or a good case of the shivers would be more accurate.”
The bankruptcy reorganization of General Motors, which will result in the federal government (and taxpayers) owning 60 percent of the “new” GM, will encourage politicians to intervene in the running of the company to the detriment of its business, he said.
“I think it’s reasonable to ask how hands-off the federal government will be when GM executives decide that it’s more economical to … outsource production of parts currently manufactured domestically,” Flake said. “Good business decisions often times don’t make for good politics, and the temptation for the federal government to intervene will inevitably be too great.”
Administration officials insist they will resist involvement in the management of GM — even with the most severe decisions.
Ron Bloom, senior adviser on the auto industry to the U.S. Treasury Department, said in a conference call Monday the administration has not second-guessed GM plant closings and dealership closings despite their impact on local communities.
“At no time did anyone from the administration dictate which plants will close,” he said. “We want to be good stewards of the taxpayers’ money. You can expect the administration will take that attitude on into the future.”
Bloom defended the administration’s actions, insisting the only alternative was liquidation of GM, which would have caused “devastation” to the economy.
“It was not just that we didn’t want to liquidate,” he said. “The president determined that there was a business plan (for the reorganization of GM) that made sense.”
Tim James, professor of economics at the W.P. Carey School of Business at Arizona State University, agreed the economic damage of letting GM and Chrysler fail would have been tremendous. But he also believes it would be a “fantastic feat” if GM could be turned into a healthy, profitable company anytime soon.
He thinks the process could take up to 10 years and will involve spending billions more of taxpayer dollars beyond the $30 billion envisioned by Obama.
“There are lots of problems still hanging out there,” James said.
He is skeptical about the role of the United Auto Workers in the new GM, with the union owning a 17.5 percent share and holding seats on the board of directors.
“The UAW has been taking too much out of the system,” he said. “They have saddled the company with costs that have nothing to do with building cars … It will be incredibly difficult to get out of that mire.”
Also James is not impressed with Fiat’s plan to acquire Chrysler — the central feature of the No. 3 automaker’s bankruptcy plan. Fiat is not known in Europe for the quality of its vehicles, and it survives largely on the loyalty of customers in its home Italian market, he said.
“Their cars are cheap but have no quality. Does that fit in with Chrysler?” he asked.
Thomas J. Kull, an assistant professor in supply chain management at the W.P. Carey school, also gets nervous about the U.S. government’s involvement in the auto industry, but he thinks the effort has a chance of success. He admits he’s not sure why.
“My feeling is if Ford can pull out of it, these other guys can too. If you can support one domestic auto company, you can support several,” he said.
But Kull said the companies will have to change their management model, moving to foreign outsourcing, fewer benefits for retirees and other cost-cutting measures avoided in the past.
“If they can get lower costs, the quality could go up,” Kull said. “If you shift funding away from retirees, the money could go into the electronics and materials that go into the cars.”