It wasn’t the $34 billion Ford Motor Co., General Motors Corp., and Chrysler LLC requested, but Monday Democrats drafted a proposal for a $15 billion auto bailout to aid the struggling American automakers.  The draft was then sent to the White House where it awaits the approval of the Executive Branch.  Though it is unclear whether the President will endorse the proposal or seek to name additional conditions of his own, signs indicate that the Democratic Congress is at the least moving towards a proposal the Bush administration could support.  If the aid package passed, Detroit’s big three automakers could see the funds as early as December 15th. 

More than a long term solution to the automaker’s problems, the $15 billion proposal is intended to serve as a bridge between the Bush administration and the incoming Obama administration, allowing Obama time to continue negotiations with the automakers and create a longer-range plan.  Last week, in testimony before Congress, the CEOs of Ford, GM, and Chrysler stated they would need an approximated $15 billion in aid to survive the first quarter of 2009.  After the proposal had been drafted Monday, Senate Majority Leader Harry Reid said:

While we take no satisfaction in loaning taxpayer money to these companies, we know it must be done. This is no blank check or blind hope.

Reid added that there would be several restrictions on how the bailout money could be spent, including an overseer from the U.S. government, the proclaimed “car czar”, who would be made aware of all major spendages from the three automakers, and also serve as an advisor, mediator, and liaison to the U.S. government.  Though several names have been tossed around as potential nominees for the “car czar”, nothing concrete has surfaced. 

From all indications in Congress and the White House, a bailout of the American automakers is imminent.  However, numerous politicians and members of the public are still skeptical that an auto bailout will produce long term benefits to the U.S. economy.  With the automakers questionable uses of research and development funds, and widely criticized lack of willingness to adopt new technologies, who can blame them? 

Nobel Prize winning economist Paul Krugman, who is in Stockholm this week awaiting the ceremony to commemorate his award, stated the U.S. auto industry would likely disappear.  Commenting on the U.S. auto industry, Krugman said:

It is no longer sustained by the current economy.  The U.S. lawmaker’s plan to bailout the automakers is a short term solution, resulting from a lack of willingness to accept the failure of a large industry in the midst of an economic crisis.

Krugman was awarded the Nobel Memorial Prize in economics for his work on analyzing international trade patterns.  In 1993 Krugman was considered for a leading post by the Clinton administration, but wasn’t offered the position formally because Clinton believed him to be too outspoken.  Despite Krugman’s tendency for audacious comments, he is regarded as a brilliant economist, and his belief that the U.S. automakers will ultimately fail doesn’t bode well for their future. 

On the opposite end of the spectrum, House Representative Barney Frank, Chairman of the Financial Services Committee, briefed Democrats on the $15 billion bailout deal Tuesday, and noted that overall the reaction was “pretty supportive” of the new bill.  Endorsements for the auto bailout as a whole have been mixed amongst both economists and politicians, but it is clear that immediate action is necessary. 

Despite recent reversals in theory, it is possible the American automakers have dug a hole too deep to climb back out.  In a national survey conducted by various polling agencies, about sixty percent of consumers perceived Toyota as the most technologically advanced and environmentally friendly car manufacturer, compared to a combined less than twenty percent for the American automakers. 

The blatant issue the big three automakers face is not so much manufacturing contemporary, efficient, desirable vehicles (which all of them have at least one in mass production), but regaining the trust of the American consumer.  The battle for success in 2009 will be fought through innovation, but also through marketing.  The American automakers must seek to reach their past consumers by repairing their image, and also branch out to new consumers. 

GM took a step in the right direction this week by running magazine advertisements apologizing for their bad record, and delivering promises of a bright future and a return to original ideals.  Though it’s a small step in the grand spectrum of marketing, it is thousands of these small steps that the U.S. automakers will need to take over the course of the next several years.  Through utilizing a variety of print, media, and online sources, Detroit’s big three can get the word out that their philosophies have changed.  In addition, automakers kicking up production of cars like the Chevrolet Malibu, Ford Focus, and Jeep Patriot, and reducing the production of undesirable SUVs and luxury vehicles will serve as a step to restoring confidence in their brands.

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