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Published: Friday, 2/20/2009

The cost of saving Detroit's automakers is continuing to rise

ANN ARBOR - Everett Dirksen, the leather-faced and gravelly voiced senator from Illinois, reputedly once said of federal spending, "A billion here a billion there, and pretty soon you're talking real money."

Mr. Dirksen, who died in 1969, was a pretty shrewd operator. But in his wildest nightmares, he never could have imagined what's happening with the auto industry today.

In fact, who could have imagined this even a year ago: Chrysler and General Motors pleading for tens of billions of dollars from the federal government in what amounts to a last desperate attempt to survive.

They are burning through money at a terrifying rate. Less than two months ago, the government reluctantly gave the two once-mighty automakers $17.4 billion, virtually all of which is already gone.

"It went to meet payroll, to pay suppliers, to their pension obligations," said Sean McAlinden, chief economist at Ann Arbor's nonpartisan, nonprofit Center for Automotive Research.

A tiny portion of it may have even gone for product development, for the Chevy Volt, for example, GM's eagerly anticipated electric car. But in any event, they've blown through it, and now the automakers are back again, hat in hand.

Last November they said a few billion would get them through. By the time former President George W. Bush relented in December, that had grown to $17 billion. Now, they say they need $22 billion more.

That makes a tidy $39 billion requested by Chrysler and General Motors. Nor, however, is that all. The companies have an entirely separate request of $25.4 billion in new loans to help auto plants retool to build more efficient models.

Their parts suppliers, which are hurting as bad as the big three, want a bailout of $25.5 billion. So if the federal government grants all these loan requests, will that be the end of it?

Mr. McAlinden, who has a PhD in economics, and is also CAR's executive vice president for research, doesn't think so.

"What's happened since December is that the bottom has fallen out of the market, out of automotive sales," he said. "It was a bad market then. It's far worse now." Indeed, auto sales in January were barely half what they were in January the year before.

Additionally, don't look now, but here [maybe] comes Ford. The Ford Motor Co. has been regarded in Washington as the "healthy" automaker, because it is the only one which hasn't requested federal bailout money in order to survive.

But that may not be true for much longer. Ford's main strength was having borrowed cash while it still could, before the Wall Street crash and the credit market freeze. However, it also has been burning through cash at a rapid rate - $5.5 billion in the last three months of last year alone, with more up in smoke in January.

Ford has now tapped its last line of private credit, analysts say. Additionally, the oldest of the automakers recently discovered a $3 billion to $4 billion shortfall in its pension plan, money the company is obligated to make up, starting next year.

The news doesn't get much better. President Obama claims that his $787 billion stimulus plan will create millions of jobs. Chrysler and General Motors say that if the taxpayers give them money, they will eliminate jobs and close plants just not as many as they would if they were forced to declare bankruptcy.

Chrysler, which wants a mere $5 billion more right now, is talking about eliminating perhaps 3,000 jobs in the country. Its hopes depend on getting that money, and creating an alliance with Fiat.

General Motors filed far more detailed plans, visible on its Web site. Once the world's biggest corporation, GM now plans to close five more plants in North America, and eliminate 47,000 more jobs, 20,000 of them in this country. And that's if things go right.

GM is also pulling the plug on some famous brands. There will be no more Saabs, Hummers, or Saturns. Pontiac is essentially going the way of Oldsmobile, though there is talk of a car or two that will carry the Pontiac name. All that will be left is Chevrolet, Cadillac, GMC, and Buick, which has oddly become the car of choice in China.

That is, if the Obama Administration approves the bailout. "We are going to be in for a rough time," getting more money approved in Washington, Mr. McAlinden acknowledged.

"People are sick of bailouts. And there's a double standard. They handed hundreds of billions to two bankrupt banks, no questions asked," he said. "But they look out their window and see a car in their driveway, and want to micromanage Detroit."

The big question: Are the bailouts worth it? "When you look at it from a cost-benefit analysis, I still think so," the economist said.

Bankruptcy would mean the loss of potentially millions of jobs, and that the government would never get back any of the billions already loaned out. Plus, the costs to the taxpayers of an automotive bankruptcy would run into the tens of billions.

A gamble, then, but still one well worth taking. Soon, the industry will know to what extent the Obama Administration agrees.

Jack Lessenberry, a member of the journalism faculty at Wayne State University in Detroit and The Blade's ombudsman, writes on issues and people in Michigan.

Contact him at: omblade@aol.com



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