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Ky. auto industry mulls options

As prospects dimmed in Washington on Monday for a $25 billion bailout of the U.S. auto industry, those watching in Kentucky feared that one of the state's leading industries could be crippled.

With four automotive plants and hundreds of parts suppliers, Kentucky has more than 50,000 people employed in the industry. And they're primed for hurt if bailout talks fail, and so are the domestic automakers.

“We are in the perfect storm,” said William Parsons Jr., who organizes the annual Global Automotive Conference in Kentucky. “Other than this dip in oil prices, we are being hammered in every possible way.”

And even Japanese automaker Toyota, whose flagship North American plant is in Georgetown, would be in trouble if the Detroit Three fail because the four share many of the same parts suppliers.

As the debate over the proposed bailout has intensified, its merits have centered on why the U.S. automakers have come so close to failure.

“They somehow have to try to fix this cost structure that's just out of whack, and they have to make products that people want to buy,” said Ken Troske, director of the University of Kentucky's Center for Business and Economic Research.

Troske said it's in Kentucky's best short-term interest for Congress to pass the bailout, as “it would probably have less ramifications on employment.”

Breaking promises

But the long-term situation is completely different, he said.

A bankruptcy would allow them to “break promises they made in the past,” Troske said. “That's clearly going to hurt workers ... but they've got to get out of those promises.”

While in bankruptcy, they would continue to produce vehicles and sell them. “Would they have to scale back? Yes,” Troske said.

For the time being, Kentucky's vehicle plants seem relatively safe, analysts said, but not untouched by the industry's problems.

Bowling Green's GM plant produces Cadillac and Corvette vehicles in small-enough volumes that they're considered niche products that are unlikely to be built elsewhere.

GM has said, however, that it plans to lay off 110 workers there in January, as it trims Corvette production. The plant employs about 800 people.

In Louisville, Ford said earlier this year that it will begin building smaller, more fuel-efficient vehicles in 2011 at its Louisville Assembly Plant, which makes Explorers. Its truck plant, which makes Super Duty Trucks, is expected to begin producing the Lincoln Navigator and Ford Expedition by early next year.

The union that represents more than 5,000 workers at the two plants said last week that Ford intends to idle them for extended periods around the holidays.

Those factories are valuable assets that could be just as well utilized by others, UK's Troske said.

Even in a worst-case scenario that saw GM liquidated, someone would likely buy the Corvette or Cadillac brand and operate the Bowling Green factory, he said.

“Somebody's going to build Cadillacs and Corvettes, it just won't be General Motors,” Troske said, referring to a bankruptcy. “That would probably be the best scenario for Kentucky ... as it's better long-term security for those jobs.”

What about Toyota?

While sales are down at Toyota, it's in no imminent danger like its American counterparts.

But if the American automakers fail, it would be bedeviled by supplier problems as a failure of the Detroit Three would cripple the same suppliers that sell to Toyota, said Kristin Dziczek, a researcher at the Center for Automotive Research in Ann Arbor, Mich.

Toyota spokesman Mike Goss said 75 percent of the parts in vehicles produced in North America are made domestically.

“And many of those same suppliers are shared with Ford, General Motors and Chrysler,” he said. “Now, in Kentucky, there are quite a few suppliers that are only there because of (Toyota), but there are a lot of suppliers doing business with several companies.”

Goss said Toyota is examining which suppliers might be at risk and “what we can do to mitigate it.” Options include helping them cut costs.

“There's been several suppliers at risk for several years,” he said. “It's not new. It's just that a lot of it's coming to a head so fast for so many companies.”

And while the suppliers' pain could be inflicted on Toyota, the company isn't positioned to take advantage of any of Detroit's failings either, said Laurie Harbour-Felax, an industry observer and president of the Harbour-Felax Group.

After the economy recovers, Americans will still be buying more vehicles, and there will be one or more fewer companies to produce them.

“Toyota can't build a plant fast enough,” she said.

Matter of trust

Those supporting the bailout say a bankrupt automaker could never emerge as a healthy company.

“Nobody will ever buy another car from one of these guys,” said Harbour-Felax. “The trust will be gone.”

Dziczek put it another way.

“While you may want to buy an airline ticket to Chicago from a bankrupt airline, are you going to buy a big-ticket multi-year purchase from a company that may not be there to support it?” she said.

And Harbour-Felax defended the bailout as being more about investing in the future than saving the jobs of today.

Without the money to develop new vehicles, “in 2011 or 2012, they won't have any new products or have anything on the road that anyone wants to buy, so we'll be talking bankruptcy again.”

Dziczek said the country can either pay now “and try to save them from bankruptcy and liquidation ... or wait for the devastation to occur and try to pick up the pieces.”

But can the Detroit Three truly survive? Sen. Richard Shelby, R-Ala., on Monday called the industry a “dinosaur” whose demise would only be extended by the bailout.

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