"Good afternoon, and welcome to NPR's 'Car Talk'. Today, we have special guest Douglas Baird of the University of Chicago Law School, here to talk with us about the bankruptcy law implications of the recent crisis in the American automotive industry. Glad to have you with us, professor."
"Good to be here."
"Could you start be explaining the roots of the problem?"
"Well, it's very simple, actually. The domestic automobile industry is tooled for a different technological era and a different car-selling era. The American car market may well be saturated -- there are already more cars in the country than there are people with drivers licenses, and with technological improvements in automobile production, cars have to be replaced less frequently. The result is that the automobile industry has seen sales drop from a consistent 15 million/year, to less than 10 million. But production capacity is still tooled for the prior era, leading to tremendous fixed costs that aren't going to be recouped in the foreseeable future."
"So how do we get rid of that excess capacity?"
"Kill Chrysler. It sounds bloodless but it's true. Some capacity had to be shut down, and Chrysler is not only the least valuable and efficient of the big three, but everyone recognized that it had no real prospects for recovery or renewal. The only question was whether it should be shut down immediately, or gradually to allow some of its functions (and perhaps its few profitable brands, like Jeep), to be taken over by Fiat. For a variety of reasons, the government chose the latter approach."