The United States automotive industry is an integral part of the American economic fabric. Although Detroit's automakers have been restructuring aggressively, it's not enough, the argument goes. General Motors Corp., Ford Motor Co. and Chrysler LLC have been caught in a perfect storm that caused an economic crisis over which the industry has no control.

Not only does the crisis endanger the restructuring, but also the future of one of America's most important industries.

Rick Wagoner, CEO of GM, told a Senate panel last week that products weren't the company's problem. "What exposes us to failure now is not our product lineup, is not our business plan, is not our employees and their willingness to work hard, is not our long-term strategy," Wagoner said.

Rather than management failures, the GM chief blamed the industry's predicament on "the deepening global financial crisis." Ron Gettelfinger, president of the UAW, also said the larger credit and economic crisis is to blame, not union workers.

In fact, Detroit is not the only place where automakers are looking for government help.

The New York Times reports that China's car industry is "quietly pressing Beijing for government help as it copes with a jarring slowdown." And according to the Wall Street Journal (subscription required), "European officials began lining up behind a European Union-wide aid program for its auto industry, though some officials expressed concerns about breaking EU rules on competition and state aid." (The EU package is due to be presented at the next meeting of EU finance ministers, on Dec. 1.)

A November 2008 poll focusing solely on the auto industry, commissioned by GM and performed by Peter D. Hart Research Associates, showed that 55 percent of respondents approved of providing government loans and 30 percent opposed the idea.

For their part, Chrysler CEO Robert Nardelli and Ford CEO Alan Mulally along with Wagoner last week insisted that they "had gotten serious about producing smaller, fuel-efficient vehicles," reports the Los Angeles Times. "They also told how they trimmed corporate fat and renegotiated generous union contracts so they could better compete with foreign automakers."

Mulally said the company is working hard to "transform our business" into a more profitable one that meets 21st century demands for fuel-efficient vehicles," the Detroit Free Press reports. "Mulally also took exception to charges the company had been badly managed, saying that 'if everybody can remember, we had gotten back to profitability in the first quarter of this year.'" The CEO added, "None of us ever anticipated that we'd be in a world where our sales in this industry have fallen by 40 percent in the first nine months."

Despite any steps forward, though, GM, Ford and Chrysler consumed nearly $18 billion in cash last quarter, and the leaders of GM and Chrysler both have said that they're at risk of running out of money soon without more federal assistance. Analysts have said GM and Chrysler could run short of cash by the end of the year.

Whatever the reasons for the current state of the domestic auto manufacturing industry, many supporters of the bailout ask, "If Wall Street is being bailed out, then why not Detroit?"

All three U.S. automaker executives have warned of "national economic catastrophe should they collapse." (Source: The Associated Press)

The Center for Automotive Research (CAR), a Michigan-based think-tank pushing for a bailout, estimates a loss of nearly 2.5 million jobs (directly and indirectly) if just half of the Big Three manufacturing capacity were shuttered — a possible scenario if GM files for protection.

In fact, a number of numerous reports over the last few days say that GM's board of directors met Friday and put an eventual bankruptcy filing into its range of options. Whereas a GM bankruptcy might be tolerable and even useful — to restructure and reorganize dramatically — in a booming economy, today's economy is not booming, and in fact is declining at a seemingly accelerated rate.

GM's management argues that the very act of filing for bankruptcy will eliminate the possibility of recovery, as people would be reluctant to purchase expensive, long-lived assets (cars and trucks) from a bankrupt entity. As the New York Times notes, the problem is that bankruptcy protection isn't what it used to be. Whereas bankruptcy protection has "always offered a glimmer of hope" that a company could reorganize and continue operating, that is increasingly unrealistic in the current climate. In a Chapter 11 bankruptcy for GM, "the snag is that even in 'reorganization,' GM would require new loans that might be unavailable," says Newsweek.

Simply put, companies are now avoiding bankruptcy protection like the plague because they know this: if they can't get credit, bankruptcy means liquidation, and needless to say loans are pretty difficult to come by these days.

"General Motors has the most at stake," says CNNMoney.com. "The company ended the third quarter with about $16 billion on hand, but it needs $11 billion to $14 billion to continue normal operations," CNN Money continues. "It burned through $7 billion in the third quarter."

The Detroit Free Press recently cited an internal analysis by Ford predicting that half of all U.S. states could lose at least 3,000 jobs each if the company is allowed to collapse, with five states at risk of losing more than 10,000 jobs. The company employs 245,000 nationwide and indirectly sustains others, like auto dealers and parts manufacturers.

Moreover, supporters of the bailout argue that a collapse of just one of Detroit's carmakers could have a ripple effect across all automakers, suppliers and dealers. Because car companies share suppliers, all U.S-based manufacturers would suffer parts shortages; American production could come to a virtual stop until new supplier arrangements emerged.

This is the heart of the industry's argument for a bailout: the elimination of potentially millions of jobs, leading to further mounting costs for state and local governments.

At Harvard Business Publishing's The Start-Up Diaries blog, entrepreneur David Silverman argues that if you see a dog is about to be run over by a truck, you don't just stand there and shout, "Sorry, survival of the fittest!" You rescue the dog and go from there.

"Business isn't about evolution, it's about existing lives," Silverman writes. "If we can spare some suffering, why wouldn't we?"

Nardelli told lawmakers last week that the bailout would be "the least costly alternative" when compared with damage from bankruptcy.

For the divergent view on the subject, check out today's The Bailout Debate: Against the Rescue.

Resources

GM Seeks $10 Billion-$12 Billion Of $25 Billion Loan Plan; Ford Seeks $7 Billion-$8 Billion
by Siobhan Hughes
Dow Jones Newswires, Nov. 18, 2008

Paulson Rules Out Aid to Carmakers Under Rescue Plan
Agence France-Presse, Nov. 12, 2008

White House Wants Auto Industry to Use Available Aid Funds
Agence France-Presse, Nov. 17, 2008

Big 3 Carmakers Beg for $25B, Warn of Catastrophe
The Associated Press, Nov. 19, 2008

Showdown Looming in Congress over Automaker Rescue
The Associated Press, Nov. 16, 2008

Auto Aid Could Get Second Chance
by Justin Hyde
Detroit Free Press, Nov. 20, 2008

Senate's Reid Says No Deal Yet on Bailout for Big Three
by Robert Schroeder
MarketWatch, Nov. 20, 2008

Auto industry survival in hands of Congress
by Todd Spangler and Justin Hyde
Detroit Free Press, Nov. 16, 2008

Ford: Half of U.S. states would lose 3,000-plus jobs in auto collapse
by Sarah A. Webster
Detroit Free Press, Nov. 17, 2008

Auto bailout: Showdown
by Chris Isidore
CNNMoney.com, last updated Nov. 24, 2008

Clout Has Plunged for Automakers and Union, Too
by Micheline Maynard
The New York Times, Nov. 17, 2008

CAR Research Memorandum: The Impact on the U.S. Economy of a Major Contraction of the Detroit Three Automakers
by David Cole, Sean McAlinden, Kristin Dziczek and Debra Maranger Menk
Center for Automotive Research, Nov. 4, 2008

An Estimate of Car Jobs in Jeopardy Is Dubious
by Catherine Rampell
The New York Times, Nov. 18, 2008

South Could Gain as Detroit Struggles
by Paulo Prada and Dan Fitzpatrick
The Wall Street Journal, Nov. 20, 2008

Back on Capitol Hill (video)
Automotive News, Nov. 19, 2008

Advantage of Corporate Bankruptcy Is Dwindling
by Jonathan D. Glater
The New York Times, Nov. 18, 2008

Come on and Save Me
by Daniel Politi
Slate, Nov. 19, 2008

Let Detroit Go Bankrupt
by Mitt Romney
The New York Times, Nov. 18, 2008

Invidious Comparisons
by Megan McArdle
The Atlantic, Nov. 11, 2008

How to fix the Big Three
by Chris Isidore
CNNMoney.com, Nov. 17, 2008

Auto Execs Fly Corporate Jets to D.C., Tin Cups in Hand
by Dana Milbank
The Washington Post, Nov. 20, 2008

Big 3 Fail to Close Deal on Bailout
by Jim Puzzanghera and Richard Simon
Los Angeles Times, Nov. 20, 2008

Earn the Bailout, Detroit
by Douglas Olin
Los Angeles Times, Nov. 12, 2008

How to Fix a Flat
by Thomas L. Friedman
The New York Times, Nov. 11, 2008

House Auto Legislation Will Protect American Jobs While Demanding Long-Term Restructuring of Auto Industry for Viability and Energy Independence
House Committee on Financial Services, Nov. 17, 2008

Is Detroit Worth Saving?
by Joseph Romm
Salon.com, Nov. 12, 2008

Facing a Slowdown, China's Auto Industry Presses for a Bailout From Beijing
by Keith Bradsher
The New York Times, Nov. 18, 2008

EU Considers Aid for Auto Makers
by Gabriele Parussini and Andrea Thomas
The Wall Street Journal - Europe, Nov. 18, 2008

Detroit on the Defensive
by Tim Jones
The Chicago Tribune, Nov. 23, 2008

Democrats to Automakers: Prove You Can Repay $25 Billion
by Justin Hyde
Detroit Free Press, Nov. 22, 2008

Romney Adamantly Against Auto Industry Bailout
The Associated Press, Nov. 20, 2008

Mulally Defends Ford's Actions
The Associated Press, Nov. 18, 2008

Auto Industry Survey
Peter D. Hart Research Associates, Inc., Nov. 11-12, 2008

48% Say Failure of GM Best for the Economy
Rasmussen Reports, Nov. 20, 2008