President Bush made it clear last Friday morning that he was not eager to lend federal money to General Motors and Chrysler. Unlike Senate Republicans, though, Bush saw that the alternative to an auto industry loan was a chaotic collapse that would cripple the national economy.
The $13.4 billion for GM and Chrysler, with the potential for $4 billion more, is a pittance compared to what’s been thrown at Wall Street. And some of the strings attached to the auto loans have a whiff of condescension totally unjustified from a political leadership long asleep at the economic wheel.

Still, the loans are there and GM and Chrysler have a few months to develop feasible survival plans.

That’s good news for mid-Michigan, where GM’s announcement of a total local shutdown in January made an already uncertain Christmas even more nerve-jangling.

But the temporary plant closures for GM and Chrysler say as much about this situation as Bush’s loan plan. It’s sad to say, but $13.4 billion doesn’t go very far these days.

And surviving to March doesn’t resolve the fundamental overcapacity in the auto industry right now.

Late last week, for example, the Michigan Senate Fiscal Agency issued a daunting economic analysis for the state - and for automakers. SFA experts predict that in 2009, the total sales of vehicles in the U.S. - from both domestic and foreign brands - will reach only 10.5 million. In 2007, that figure was roughly 16 million.

And even as bad as 2008 has been, total sales are projected at around 13 million.

So, for 2009, automakers must compete for a market with 3 million fewer sales. And while matters improve in 2010, the SFA projection is for sales to climb to only 12 million vehicles.

Such a market will not sustain all the auto firms in their current form.

While GM and Chrysler issued denials last week to a report that they had resumed merger talks, the logic of a merger seems stronger than ever. Getting two healthy domestic automakers out of this situation seems much more plausible than getting three. And Ford, so far, says it has enough cash and is far enough along in its own restructuring to avoid federal help.

Unlike Southern Republican senators, who wanted the automakers and UAW to conform to wage and benefit practices set by foreign brands, the Bush administration is providing flexibility on spending. GM and Chrysler, though, will soon have to show how they can be viable businesses for years, not just weeks.

That’s a reasonable concession, especially since the alternative - collapse into immediate bankruptcy and liquidation - was too horrible to contemplate.
Sourse: http://www.lansingstatejournal.com