03 December 2008
World markets were mostly higher, despite more discouraging U.S. economic news. VOA's Michael Bowman reports from Washington, where Congress and the Bush administration are examining restructuring plans put forth by failing American carmakers in hopes of securing emergency federal loans.
The latest economic data shows further contraction of America's service sector, the slashing of 250,000 private-sector jobs in November, and reduced productivity gains in the United States, which is now believed to have been in a recession since the end of 2007.
The deteriorating economy has further strained America's already-struggling automobile industry. The biggest of the top three U.S. carmakers, General Motors, says without immediate government assistance, it could face bankruptcy in coming weeks.
General Motors, Ford and Chrysler are asking for a total of $34 billion in federal loans, and have pledged to cut costs and restructure operations to restore long-term viability.
The Bush administration, which has opposed extending federal assistance beyond a $25 billion government loan originally intended to foster the development of more fuel-efficient vehicles, is taking a wait-and-see approach to the carmakers' pleas for help.
"We want to make sure that a company is viable, so that if the American taxpayers help the automakers now, that they do not have to help them again in six months because the plans did not work. We have said that we want to try to help the automakers. But we need to look at each of them and see if what we would be able to support could actually be a good investment fort the taxpayers, and we just do not know that yet," said White House spokeswoman Dana Perino.
Auto executives are to testify on Capitol Hill later this week for the second time in as many weeks. Tuesday, the carmakers reported sales in November that were down as much as 47 percent from a year ago.
"The pace of deterioration [of sales] has actually accelerated. Weakness in the first quarter [of 2008], more weakness in the second quarter, significantly more weakness in the third quarter, then October and November were the worst levels we have seen post-World War II," said General Motors Chief Operating Officer Fritz Henderson.
But industry analysts say, even if car sales were better, U.S. manufacturers would still be losing money because the cost of producing each vehicle exceeds what they can charge to sell them.
Carmakers need to cut costs, and that means securing significant wage and benefits concessions from the United Auto Workers union, according to analyst Rebecca Lindland of the forecasting firm Global Insight.
"This [bailout of the auto industry] is not going to really work without getting some kind of flexibility from the UAW. These companies could go bankrupt, and then the union is powerless. So they have to give concessions," he said.
Democratic congressional leaders have said it would be unacceptable for the U.S. auto industry, the backbone of American manufacturing, to fail. What is yet to be decided is whether emergency government funds would come from a $700 billion financial rescue package Congress approved in October.
The Treasury Department has spent nearly half of those funds to prop up banks, mortgage and investment firms, and insurance companies.
At a news conference, President-elect Barack Obama said he wants to see federal assistance go beyond rescuing financial corporations and provide relief to Americans who are in danger of losing their homes.
"We have got to start helping homeowners, in a serious way, to prevent foreclosures. The deteriorating assets in the financial markets are rooted in the deterioration of people being able to pay their mortgages and stay in their homes. And if we help Main Street, ultimately we are going to help Wall Street," he said.
Mr. Obama spoke after announcing the latest member of his economic team, New Mexico Governor Bill Richardson, who he nominated to be commerce secretary.
Major markets in Asia and Europe all closed moderately higher.