Automakers Must Address Five Crucial Issues for Bailout

Although U.S. automakers focused on more profitable SUVs and trucks at the expense of developing more cars and fuel-efficient technologies, they turned that around in recent years. But it's clear lawmakers want more.

Ford was the first automaker to offer a hybrid SUV, its Ford Escape, and has made major upgrades in power and range for its just-unveiled Fusion and Milan hybrids. GM has developed hybrid cars and trucks, as well.

GM and Chrysler are pouring money into developing electric plug-in vehicles, a point they highlighted to Congress.

But Himanshu Patel, an analyst at JPMorgan Chase, cautions automakers to resist attempts by the government to order a wholesale, costly acceleration of such high-tech cars at the expense of nearly as efficient but traditional vehicles that can be profitable now.

"The 2007 energy bill already began this process (of transition to greener cars) and, outside of this legislation, we are deeply skeptical of the commercial prospects for government-dictated product plans," Patel says.

Financial troubles amid the auto sales collapse have led Chrysler and GM to even cut back some current hybrid programs.

Chrysler's hybrid SUVs will go out of production after just 16 weeks because it cannot afford their Delaware plant. GM delayed an advanced Saturn Vue gas-electric hybrid into next year to save money.

But Nerad thinks profit and loss aside, automakers must "green" their plans.

"I think the message that Congress wants to hear isn't necessarily a business case," he says. "It has to do with non-business things like environmental issues and fuel-economy issues. I think to make these plans fly, there probably has to be some of that in there."

4: Too many dealers

The Detroit 3 have too many stores for their market share and far more than foreign automakers. For example, Toyota has fewer than 2,000 U.S. dealers, while Ford has almost 4,000. Result: A typical Toyota dealer sold 1,628 vehicles in 2007, according to a study by Grant Thornton, while Ford stores averaged 236. The average for all new car dealers: 322.

With consolidation efforts by the automakers and overall sales woes, about 700 dealers will have closed this year; more than twice that could close in 2009. But that's not fast enough, and state franchise laws make it tough and costly to cut off dealers who don't want to close or be bought out.

In their plans, the Detroit 3 could make their case for cutting dealers and even ask Congress to override state laws to cut consolidation costs.

However, Van Conway, a restructuring expert in Detroit, says it still would take too long and sees little alternative to buying dealers out: "I don't see any easy way to do that, except for compensating them to go out of business."

Growing Business

Meanwhile, others are even urging federal help to keep more dealers in business. Raul Vasquez, an advertising consultant in Florida, is mounting a grass-roots campaign for federal backing of "floor-plan" loans — dealers' financing for the cars and trucks on their lots.

"We're trying to get Congress to pay some attention to the dealer level," says Vasquez, who runs SaveMyLocalDealer.org.

"They're trying to solve the problem in the auto industry on the manufacturing level, but that's not what consumers are scared about. They're scared when they see their local dealers shut down."

5: Bias in Congress

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