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When times were good, the automakers did not take on the UAW, which the companies say drove up their labor costs to $30 per hour more than Japanese companies paid their workers. The figure includes pension and health care costs for hundreds of thousands of retirees. When GM pushed for changes in 1998, the union went on strike at two key Flint, Mich., parts plants, shutting down the company and costing it about $2 billion in profits. "They were making money and the union had a monopoly," Cole said. "They'd shut them down. That's why they had some very lengthy strikes that were very painful." But when the SUV and truck market started to fade in the mid-2000s, executives realized their business model would no longer work and began globalizing their vehicles, streamlining manufacturing processes and developing new and better cars. The UAW, realizing that the companies were in trouble, agreed to a landmark new contract last year that nearly eliminated the labor cost difference between the Detroit Three and the Japanese, shifting retiree health care costs to a union-administered trust fund. But just as the cost cuts started to take hold and new products were rolling out, gas prices rose rapidly to around $4 per gallon and Wall Street collapsed, virtually eliminating credit which 60 percent of car buyers need. "A lot of things sort of coalesced simultaneously," said Tom Libby, senior director of industry analysis for J.D. Power and Associates.
Automakers have all said bankruptcy is not an option because people would not buy cars from a company that might not exist in a few years. But if the car companies run out of money and can't pay the bills, bankruptcy could be forced on them, according to industry analysts. GM's statements that it may run out of cash this year or next likely will have an effect on sales, Libby said. "It doesn't help, and they know that," he said. The current crisis, Cervone says, is not unique to the domestics. Honda and Toyota, he says, also have seen huge sales drops in the U.S. in recent months. If Detroit gets federal help, the companies that do survive should become profitable next year, Cole said, if the credit market thaws out. Cole says there's no way at this point the Detroit automakers can survive without federal aid. But if they get it, the ones that do survive should become profitable again next year if the credit markets thaw out. "They'll get out of it," says Libby. "They've got to do what they've got to do. They're backed up against the wall."
[Associated
Press;
Copyright 2008 The Associated Press. All rights reserved. This
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