Posted on 09/24/2008 6:58:14 PM PDT by bruinbirdman
In Washington these days, an 11-figure expenditure barely attracts notice.
With Congress preoccupied with the massive, $700 billion bailout plan for the financial industry, General Motors, Ford, and Chrysler have finally secured Part One of their own federal rescue plan. A bill set to be passed by Congress and signed by President Bush as early as this weekend—separate from the controversial Wall Street bailout plan—includes $25 billion in loans for the beleaguered Detroit automakers and several of their suppliers. "It seemed like a lot when we first started pushing this," says Democratic Sen. Debbie Stabenow of Michigan, one of the bill's sponsors. "Suddenly, it seems so small."
But please don't call it a "bailout"—Detroit is too proud for that. Exact details will come later, but the loans would probably amount to at least $5 billion for each of the Detroit 3, plus smaller amounts for suppliers. That would allow them to borrow money at interest rates as low as 4 percent—a steep discount compared with the double-digit rates they're paying now. Over several years, the automakers could save hundreds of millions in financing costs. Plus, they'll have five years before they have to start repaying the loans.
It might seem like a stealth rescue, but the plan has been in the works for at least 18 months. Approval for the loans was first included in last year's Energy Independence Act. Earlier this year, the automakers sought a first installment of loans totaling about $6 billion. But the nationwide credit crunch severely crimped their ability to borrow, and besides, next to bailouts like $200 billion for Fannie Mae and Freddie Mac, a mere $6 billion started to seem unduly modest. So Detroit raised the ante to $25 billion, the most allowed under current law.
Some details of the program:
It's much bigger than the Chrysler bailout of 1980. Back then, the government gave Chrysler a $1.5 billion loan guarantee to stave off a bankruptcy filing. That's equivalent to about $4 billion today—less than the amount each of the Detroit 3 is likely to get this time around.
There are few strings attached. The 1980 plan also included a long list of rules Chrysler had to abide by in order to get the money (including, get this, "an energy savings plan focusing on the national need to lessen U.S. dependence on petroleum"). The current legislation requires only that the money be used to retool old assembly lines and develop advanced, fuel-efficient technology. Since the automakers are already spending billions to do that, they could easily shift money around and use the low-interest funds to effectively support almost any project.
It props up a private company. In 1980, Chrysler was a public company, just as GM and Ford are today. But last year a private equity firm, Cerberus Capital Management, bought Chrysler, taking the firm private. And there's little or no precedent for the government aiding a private company that has no stockholders among the public. "I'd draw a line between public and private," says Kathryn Rudie Harrigan, a strategy professor at Columbia Business School. "I understand there are a lot of jobs at stake, but the taxpayer can only carry so much."
Detroit desperately needs the help. Many analysts expect all three domestic car companies to face a life-threatening crisis if the U.S. car market, down about 20 percent so far this year, stays in the doldrums. GM and Ford could start to run out of cash by the second half of 2009, a precursor to declaring bankruptcy. Chrysler's finances are now private, but its sales are down even more than at Ford and GM, and it may be starting to bleed its corporate parent, Cerberus.
The idea behind the loans is to buy time while the Detroit 3 revamp their lineups, develop new hybrids and other fuel-sippers, and convert old SUV plants into factories turning out hot cars able to compete with those from Toyota and Honda. "I think they're on the verge of really turning the page," says Stabenow. But Detroit has fallen mightily. Consumers reeling from $4 gas have fled the big trucks and SUVs that the manufacturers milked for two decades, and Detroit's smaller cars tend to rate poorly compared with competitors. The domestics' U.S. market share is now about 48 percent, a staggering fall of nearly 20 points since the start of the decade. Fitch Ratings expects GM and Ford to produce about 1.3 million fewer cars this year than in 2007. Even cheap loans will do little to help erase years of red ink. "Even if they had positive cash flow," says Mark Oline of Fitch, "it's going to take some time to make a dent in their debt load."
There's more aid coming. This year's $25 billion is just a down payment. The automakers now plan to ask the government for another $25 billion in loans next year. It's just spare change, after all.
Name one critical defense item made by the Big Three.
Just FYI, many of GM’s US models now have engines made in China - specifically the I4s and I6s.
ALL the countries you buy from, practice predatory managed trade.
We (Americans) are excluded in varying degree from selling into their markets.
They are welcome with open arms, to sell in ours.
That, kemosabe, is why we have a trade deficit. And also, why President Bush had to go on television today.
I wish he’d realize that. He’s the biggest “free trader” around.
He’s part, of the problem.
We need to be (far) more aggressive in opening foreign markets.
We have taken the easy route for so long by accepting this one-sided state of affairs, we’ve now GIVEN away almost the entire farm...
“Besides, blue collar workers jobs are worth saving, since they do productive work that benefits America.”
You’ve obviously never experienced the UAW work ethic. I was shocked at what I saw going on at one of the plants that I was sent to to provide training. The union made me provide the training on a weekend so they could get OT. Most slept, others read the paper, a few pretended to be interested. One guy bragged to me that he’s never used his tool allowance to actually buy tools. I asked him how he gets his work done. He said he don’t do any work.
Ruined my weekend and opened my eyes.
I know, it's kind of radical, but...
Exactly!!
Everyone is the problem here. Pubs shut up, Rats pocketed money,
and Bush deserved a Lewinsky in the oval office over all the crap he's endured for the last 7-years.
Now "you" have BDS. Just great.
And don’t call me “kemosabe”. An Indian once called me that in Reno!
That may have been what the Heard company was claiming, but they really went out of business for shady business practices (something that GM won’t actually police or do anything about no matter how many complaints they get). IIRC, there’s a number of large lawsuits that Heard Co. is losing, has lost, or will lose, and they’re all coming due now.
Don’t take my word for it, Google for Bill Heard and you’ll get literally thousands of pages detailing their shady dealings.
Why do only U.S. companies with United Auto Worker employees need to beg for cash relief? Honda, Toyota, BMW, and other foreign companies make cars in America, but they are not begging for a bailout. Don’t you think the problem might lay with the UAW.
“Until Detroit fixes their distribution and maintainence side of their business.....I fully intend to remain far away from them.”
Sorry for being so late to the party, but I figured I would clarify something for you. The distribution and maintainence side of the big three, is actually performed by independantly owned dealers. The big three are restricted from owning dealerships. The government prevents them from actually controlling the behaviour of these independently owned dealerships.
It really is sad how much interference the government has had in the automotive industry.
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