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Friday, Dec. 5, 2008

A Local Take on the Auto Industry Bailout

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It's been just a few weeks since taxpayers rescued the crippled financial markets. Today, Detroit's three auto makers are seeking a life preserver in the form of 34 billion dollars.

Executives from the big three automakers have presented their case before Congress, requesting a rescue package, admitting mistakes and promising better management in the future. The companies have admitted to making more vehicles than could be sold and ultimately paid the price in product surplus.

Mike Delmore is the Controller for Hall Chevrolet in Milwaukee and says

People don't seem ready to jump off buildings just yet. "To be honest, everyone has been going about their jobs," Delmore says. "We are focusing on the things we can control."

Delmore says the auto executives have broken promises in the past, so he's not surprised that the country is skeptical. "I suppose they've admitted they're guilty of some bad business practices." Delmore says it's complicated as the auto companies have to deal with costs for retirees and obligations to unions, among other responsibilities.

"I haven't had anyone come to me directly, customers or otherwise, in any real sense of panic," Delmore says. "You'd think this would be a huge concern to the consumer, but I haven't heard much." Delmore says he believes he is providing a great product at a great price. However, the question remains: is anyone planning on buying?

As a result of their mistakes, the auto manufacturers now say they're more determined and focused. Making the trip to D.C. in new-model hybrids made by their respective companies, executives are trying to put on a new face, hoping that everyone will forget the previous face. They're hoping that the public will forget the business practices of yesteryear.

If the auto industry in Michigan should go belly up, the companies want the public to understand that three million people will be floating in a sea of despair.

Peter Bilgo is a co-owner of Riverside Auto Service on the East Side of Milwaukee. He says the trickle-down effects from the failure of the Big Three automakers will be felt across the board. "The households, the secondary industries, they'll all feel it," Bilgo says.

Perhaps counter intuitively, auto repair businesses like Bilgo's would not suffer as much as other companies, at least in the short term. "People are not buying new cars. They are repairing what they have," Bilgo says. "People are not willing to open their wallets unless they have to." Bilgo says auto shops will see an increase in the amount of repairs they do, but consumers will forgo preventative repairs on their vehicles.

Bilgo says people are likely to replace their brakes only when they no longer work, not in anticipation of the brakes going bad.

"What are we going to do, let everybody declare bankruptcy? We have to do something. Renegotiate all the contracts. I'm not sure of the best way to do it," Bilgo explains.

It will ultimately fall to Congress to determine the fate of the American automakers. The business model they've been using the past 25 years hasn't worked. What the foreign automakers have been doing for years, making more fuel-efficient cars, appears to be more successful.

Bob Gigl with Heiser Automotive says business is up for the year, despite the distress signals from Detroit. "Ford has been cutting and trimming," Gigl says. "This is nothing new. Two years ago they were down 25 percent. Now we've got four or five cars with good gas mileage. We have a hybrid-fusion coming out next year."

Gigl says virtually all businesses will be affected to some degree. "I think even with the recent low gas prices, people are afraid to spend money." According to Gigl, if people have insecurities about the economy, they're not going to buy a new car. "I read where the computer industry is experiencing its first downturn ever. There's a huge ripple effect. They give 700 billion to Wall Street, and three out of ten people working have some tie to the auto industry."

Brad Schwanda is a Community Action Coordinator with the state of Wisconsin. "We are looking at about three million jobs here," Schwanda says regarding the potential downfall of the U.S. auto industry.

"Dealerships will feel the hardships, the restaurants near the dealerships will feel the pain. The auto industry is undeniably critical to our country. We should be up in arms about the banking bailout. They gave Citibank an extra 36 billion over the weekend and you hardly hear anything about it."

Schwanda is meeting with Congressman Paul Ryan next week. "Ryan has been talking about some money appropriated for more fuel efficient cars. Right not that money is sitting out there in cyberspace."

The auto companies should be held responsible, Schwanda says. "They've got to be held accountable. We have to be sure it doesn't happen again." Schwanda says auto manufacturers have weathered many storms in the past, but this one looks severe.

Schwanda says the economy and the auto industry are victims of a perfect storm. "They give all this money to the banks, but they don't produce anything. With the auto industry they have actual human beings working for them, making a product. People should be irritated."

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