Auto giants' mess explained

Oh, to have been a fly on the wall as the Bushes welcomed the Obamas at the White House on Monday.

Reports say the ladies talked about raising daughters there (fortunately the Obama girls are too young to drink), while the men got down to business. On Obama's agenda: Detroit.

Reportedly Obama "urged" President Bush to rescue U.S. car makers from their death spiral—General Motors may run out of cash to pay its bills by January. Now Congress is considering sending billions in aid to keep them afloat. Detroit wants $25 billion now, and maybe $25 billion later.

So, how did we get here? A WeeklyDIVA primer:

 

• For much of the 20th century, U.S. car makers dominated U.S. cars sales and were an integral part of the economy as a manufacturer and an employer. The Big Three were all founded in the early 1900s—Ford in 1903, General Motor in 1908 (it just turned 100), Chrysler in 1925.
  
• In the mid-1970s Japan began importing smaller, more fuel-efficient cars to the U.S., stealing market share along with other importers. Detroit began bleeding jobs in the 1980s.
  
• In the mid-1990s Detroit found its golden ticket: the Sports Utility Vehicle. For years SUVs were the bread and butter of U.S. car makers. And while SUV sales began slumping several years ago, Detroit kept cranking them out.
  
• Meanwhile union contracts that afforded good wages and employee pensions became expensive burdens, as did lifetime health-care benefits for retirees. GM spent $5 billion on health care for one million retirees and their families in 2007, which added $1,500 to the cost of every GM car.
  
• When gasoline prices reached record highs this year, SUV sales fell off a cliff. Hybrid sales, largely from Toyota, soared.
  
• Finally, the economy may have delivered the last blow. October car sales were the worst in 25 years as consumers cut back sharply. GM alone has lost over $20 billion this year.

The big picture

So, here we are. First the banks were said to be "too big to fail" because they were too interconnected into our daily lives to be allowed to collapse. So the government rescued them (except for Lehman Bros.). And while Congress seems hesitant to send Detroit a lifeline anyway, some say let them go bankrupt and deal with the consequences of their own mismanagement and failure to catch the hybrid wave faster. 

 

Still others say bankruptcy would unleash all kinds of problems. And the Big Three say they are too big to fail—that they employ 250,000 people directly and millions through parts suppliers and other support industries.

 

It's a mess.