msnbc.com
updated 12/4/2008 10:06:34 AM ET 2008-12-04T15:06:34

U.S. automakers are in deep trouble. On Tuesday General Motors, Ford and Chrysler reported their worst monthly sales in 26 years, and on the same day the companies asked Congress to grant them $34 billion in federal loans to help them overcome slumping demand because of the recession, the credit crunch and changing consumer taste. GM said it needs $12 billion alone by March to stay in business.

If Congress grants them the loans, will it be enough? What does Detroit need to do to survive? We asked a handful of automotive industry experts and observers for their views on how the nation’s big automobile makers can fix their problems. Other experts have offered their opinions to CNBC and other media outlets.

Here is a sampling of their ideas:

Daniel Sperling, director of the Institute of Transportation Studies at the University of California, Davis, and co-author of the new book “Two Billion Cars: Driving Toward Sustainability”

High gasoline prices could provide a large portion of the $25 billion bailout that the “Detroit Three” U.S. automakers are asking the government to provide to see them through these difficult times.

The federal government should establish a price floor of $3.50 per gallon on gas and impose a variable tax to bring the price back up to $3.50 if it drops below that level, as has been the case recently. The tax disappears if the price of gas goes above $3.50.

At current gas prices, the variable tax would raise enough money in one month to generate more than $17 billion, providing a large portion of the loan guarantees the big U.S. automakers seek. The extra money generated by the variable tax could be used for other uses — one is for states to balance their budget(s). That is a plan under discussion in California right now.

The price floor would be linked to the comparable world oil price (say $85 per barrel), rather than directly to gasoline prices, so that local gas distributors aren’t tempted to manipulate prices to the target level.

Image: Martin Feldstein
Getty Images file
Harvard economics professor Martin Feldstein.
To receive some of the money raised by this tax, the U.S. automakers would be required to produce large numbers of affordable, durable, safe, fuel-efficient, low-carbon vehicles within the next five years. They should also be required to sell a certain number of near-zero emission cars — electric, plug-in hybrids and fuel-cell vehicles.

Besides helping out U.S. automakers, the money raised by the tax would be used to fund tax credits or vouchers to ease the burden on low-income taxpayers of higher gas prices.

Harvard economics professor Martin Feldstein (CNBC interview, Nov. 19)

We should let them go into bankruptcy.

There’s this myth out there that if they go into bankruptcy millions of people will lose jobs. That’s not what happens when you have Chapter 11 bankruptcy. The business continues, and the government could provide lending to get them over the hump while they are reorganizing. But the key thing is to become more competitive by getting wages in the current unionized auto companies in line with other automakers in the United States.

What’s the key for making the companies viable? It’s to become competitive again, and that’s going to require restructuring of the wages and benefits of the automakers. So whether it’s done in bankruptcy, or it’s done in some other managed program, that’s what has to happen.

Aaron Bragman, automotive industry analyst with consulting company IHS Global Insight

There is one thing that the government could do that would immediately make everything better — get people buying cars again.

Earlier this year, the big U.S. automakers were doing well with their turnaround plans. They were cutting costs and focusing on smaller, more fuel-efficient vehicles, but they were also counting on having revenue at the end of this year and in 2009.

Then in the late summer and fall the recession hit, and it was deeper than anyone expected, and people basically stopped buying cars. In fact, the only reason the Detroit Three are in Washington, D.C., this week asking for a bailout is the economy fell out from beneath them and car sales plummeted.

So if the government really wants to fix the U.S. automotive industry’s problems, the best thing for them to do is to provide some incentive to get people buying cars again. They could do that in a number of ways — through a tax incentive, or with special rebate plans.

This is a consumer-based economy, and right now we’re seeing what happens when people stop consuming. A restoration of consumer confidence will not only help the automakers, it will also help other parts of the industry — car dealerships will benefit, and suppliers to the automakers will see increased production. It’s all about selling cars, and if people aren’t buying cars a bailout will only tide the industry over.

Until the confidence of the consumer is restored and people start buying cars again, the auto industry will need bailout after bailout.

Gary Starr, founder of ZAP (short for Zero Air Pollution),  a publicly owned U.S. company that makes and markets electric vehicles

History shows that 100 years ago none of the stagecoach manufacturers saw the advantages of the horseless carriage, as the first cars were known, so they disappeared. Similarly, modern conventional automakers have fought electric cars and fuel efficiency standards for decades. Now almost all foreign manufactures have higher-mileage vehicles than U.S. manufactures.

To stay in businesses, the Big Three U.S. automakers now need to team up with the nation's new breed of innovative car manufacturers to make our transportation sustainable, not dependent of foreign oil and safer for the environment.

President-elect Obama’s plan to put 1 million plug-in hybrid cars — cars that can get up to 150 miles per gallon — on the road by 2015 is a good start to putting the U.S. automotive industry on the road to recovery.

But we can go further. We should also make the White House fleet all-electric, mandate all federal fleets are either plug-in hybrid electric vehicles or 100 percent electric and provide tax incentives for consumers to purchase these vehicles. We need to ensure that all manufacturers’ electric vehicles qualify for the tax credits and loan programs, not just a select few.

Image: Jerry York
Reuters file
Former Chrysler exec Jerry York.
And why not a job program to retrofit gas vehicles and build new electric vehicles for the nation, just like we had a job program to build ships during World War II, or an Apollo-type program when we mandated that we would put a man on the moon?

Jerry York, former chief financial officer at Chrysler, current chairman, president and chief executive at private equity firm Harwinton Capital (CNBC interview, Nov. 19)

What I see as the best solution now is a small amount of bridging money for General Motors and Chrysler, as they are nip and tuck with their minimum cash requirements right now, and then sometime in 2009 they’d need to come up with a recovery plan [for the whole industry].

[To get a bailout] the automakers should be required to provide business plans with the steps they plan to take — that’s what we had to do at Chrysler in 1979 and 1980, and it worked very well.

Chrysler is simply not viable in its current configuration. Most of the growth in the automotive sector on a worldwide basis will be in emerging markets, and Chrysler has almost no position in these markets. Chrysler needs to merge with a foreign automaker that has a position in those markets [with or without financing].

A merger with General Motors not the solution. I have talked to 50 or 60 people since talk started about a GM merger, and I have yet to meet one that thinks it’s a good idea.

Image: Michael Moore
AP file
Filmmaker Michael Moore.

Ford — on the liquidity front they made a smart move a few years ago and borrowed $26 billion. So they’re the only one of the Detroit Three that has cash in excess of their debt.”

Michael Moore, Oscar-winning documentary filmmaker (interviewed on CNN’s Larry King Live, Nov. 23)

I think what has to happen here is that Congress needs to pass some legislation, and our president-elect needs to do what [President Franklin] Roosevelt did.

When Roosevelt came in and when World War II faced the country, Roosevelt said to General Motors and Ford, 'You’re not going to build cars anymore. You’re going to build airplanes and tanks and guns and the things that we need for this war because we have a national crisis.' And so General Motors had to do what Roosevelt told them they had to do.

The same thing has to happen now.

President-elect Obama has to say to them, yes, we’re going to use this [bailout] money to save these jobs. But we’re not going to build these gas-guzzling, unsafe vehicles any longer.

We’re going to put the companies into some sort of receivership and we, the government, are going to hold the reins on these companies. And they are to build mass transit. They’re to build hybrid cars. They’re to build cars that use little or no gasoline.

And — I mean because we’re facing a national crisis — not just an economic crisis, but a crisis of the polar ice caps are melting. There’s only so much oil left under the Earth.

We’re going to run out of that, if not in our children’s time, our grandchildren’s time.

There’s got to be a plan set up to find other ways to transport ourselves or other ways than using fossil fuels.

UAW union President Ron Gettelfinger

To fix the U.S. auto industry, the U.S. government needs to act now.

Given the current problems facing our national economy and the auto industry, inaction is simply not an option. Without immediate assistance, we could see a collapse of one or more of the domestic auto companies by the end of this year.

The costs that would flow from this are simply too great. You've heard the numbers: 3 million jobs; we have a million retirees, spouses and dependents that would be losing possibly their pension and/or their health care benefits.

The federal government would be saddled with huge pension and health care costs. Thousands of other businesses, suppliers, dealers and others who depend on the auto industry would be in trouble. The current recession that we are in would be made much worse with revenues to federal, state and local governments dropping, forcing cuts to public programs. To prevent those devastating consequences, the Bush administration and Congress need to act now to provide an emergency bridge loan to the domestic companies.

Image: Ron Gettlefinger
Getty Images file
UAW President Ron Gettelfinger.

This is about a young family that is counting on these jobs so that they can provide for their children and perhaps have an education for their children in the future. It is about retirees who worry everyday about whether or not their pension check is going to come in.

I just hope that one of the things that we haven't lost here is the impact of a bankruptcy on the part of any of these companies.

Peter Morici, business professor, University of Maryland

Everyone knows the Detroit Three make great trucks, but their sedans and crossover vehicles have not measured up well to Japanese companies making vehicles here in the United States. Consumers simply do not find them as attractive, and those vehicles are sold at discount prices relative to Japanese brands.

The problem is not good engineering or manufacturing know-how. Ford has pulled up the reliability of their sedans and crossovers to levels comparable to Toyota and Honda, and GM is doing a heck of a job competing with Toyota in China.

The Detroit Three need to bring down their platform development costs and align their blue-collar labor costs (including real-time wages and benefits, layoff costs, retiree costs and plant productivity) with Toyota and Honda plants in the U.S. Southeast.

Like their foreign competitors, U.S. automakers need to provide an assortment and freshness of vehicle choices. They need to produce vehicles that compare in price to those of their foreign competitors that have the same overall vehicle content (drive train refinement, interior/exterior dimensions, quality of interior materials, durability of original equipment tires and brakes, quality of climate control systems, etc).

Only when they make these changes will the Detroit Three be competitive. Their challenge is to better manage vehicle development and finally get the right contract with the United Auto Workers union, which they simply don’t yet have and will not have in two years as the Detroit Three claim.

The U.S. automakers are making a lot of progress, but their labor and other costs need to come down further. That is why Toyota and Honda can make some money in this economic environment but GM, Ford and Chrysler cannot.

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