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Marketplace Report: Dire Warning to Auto Workers

CHADWICK: Back now with DAY TO DAY.

You know these are difficult times in the American auto industry if the president of the United Auto Workers is warning his people about sacrifices to come. UAW president Ron Gettelfinger has issued a blunt assessment of the U.S. car market.

John Dimsdale joins us from Marketplace.

John, specifics? What is Mr. Gettelfinger telling his auto workers?

Mr. JOHN DIMSDALE (Marketplace): Well, he's kicked off the union's annual convention in Las Vegas with some plain speaking that many people say has been missing from the union. He's warning that this downturn isn't a traditional, temporary cyclical dip for the industry, that there are structural changes going on. And he says that in next year's contract talks there's going to have to be more concessions from the workers if the three American car companies are going to survive.

Those companies have made promises of some lavish pension and retirement health benefits which foreign companies haven't made. Union members are beginning to acknowledge that these costs add thousands of dollars to the price of each car. Still, Bob Schulties, who runs the Cars! Cars! Cars! blog, says maybe unions are being a little hard on themselves, that worker benefits aren't the whole problem.

Mr. BOB SCHULTIES(ph) (Cars! Cars! Cars!): I don't think it would be an issue if General Motors or let's just say Detroit wasn't at, what, about 53 percent of the market share. If they were at 60, 70 or 80 percent of the market share, I don't think it would be an issue. Their product is not catching the interest of consumers.

CHADWICK: John, maybe the problem is that their product just didn't seem to anticipate the jump in the price of gasoline.

Mr. DIMSDALE: It's true. American companies find themselves relying heavily on the sales of the bigger vans and the trucks and the SUVs, and that brings up another dark spot for them. The housing market has been slowing down, and that means less construction. Well, construction workers use trucks, so there's less demand for trucks. Sales of large pick-ups dropped more than 11 percent in May. They're down more than 4 percent for the year.

Plus, American companies have been slow to adopt the hybrid fuel, electric technologies which have become very popular now that gas is so expensive.

CHADWICK: So what do you think about the prospects for the U.S. auto industry?

Mr. DIMSDALE: Well, there is a whiff of bankruptcy. Late last week, the Fitch rating service downgraded its rating of Ford's debt by two notches. It's now a B+ rating. Now, B+ may not sound so low, but there are lots of higher ratings, AAA, AAA++, and BBB, etc. At the B+ rating, Fitch says about 24 percent of the companies that reach that level fall into bankruptcy within five years. And GM's debt rating is even lower than that.

So obviously, they've got to improve their appeal to consumers. They've got to develop more efficient engines. And the companies have to work out a different relationship with the unions, all of which is going to be very disruptive for the industry.

Coming up later today on Marketplace, as the U.S. plays its first World Cup game, we're going to find out why many U.S. companies want to sponsor the Mexican National Team.

CHADWICK: Thank you, John Dimsdale of public radio's daily business show, Marketplace, from American Public Media. Transcript provided by NPR, Copyright NPR.