No, the Big Three spent years screwing their customers. Now they reap what they have sown.
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.
The nation should have put more of an effort into developing a more usable rail system.
But that would have increased taxes.
And when oil was cheap, Americans could afford their love affair with the great automobile.
So, you ever going to answer my question?
Do you support the purchase of KNOWN defective goods at a higher price than the higher quality competition, just to “support American industry”?
I’m going to keep asking this question until you stop dodging it... Obama.
I used to *be* a union worker.
I despise American unions now.
And Brack-O wants a second, larger round of stimulus checks.....bring it on.
No, the Big Three spent years screwing their customers. Now they reap what they have sown.
ken21: “now i buy what i like and what i believe to be quality.”
Then you’re likely buying a lot of American products. Even though they are typically more expensive than foreign imports, the quality of American products is generally much, much better. Take cars, for example. I work on them a lot, and I assure you the American-made parts are a cut above. Unfortunately, many America-bashers like yourself would rather buy the cheap parts from China and put their fellow citizens out of work. Hey, it’s a free country. Just don’t gripe when China ends up owning America.
Strawman.
I own an American car which I bought new. It’s not defective, and I actually paid less for it, than I would have for an equivalent Honda.
It’s excellent. Best car I ever had.
Now pipe down, and stop whining.
When will these freebees stop? And what the hell happened to this country? 3 months ago it this nation had a veneer of normality. Now we have welfare for everyone, corporate buyouts, 700 billion dollar ponzi schemes, emergency Paulson Powers etc etc etc... Something deep within tells me that this is just the beginning.
I must disagree with you. While many US-made auto parts are good, the Japanese ones are often far better - especially ones involving precision work like U-joints. Though Timken still makes the best roller and ball bearings.
As someone who does a lot of work (recreationally) on recent American and foreign product, much of the recent American product shows a *lot* of cost cutting and penny pinching.
And then there’s the whole “oops, we left bolts out of the steering column thing”.
The catch is that most of the American-made stuff that’s of good quality... is in something with a foreign brand name on it and is not union-made.
i’m selling my 2003 chevrolet privately,
you wanna buy it?
ANSWER THE QUESTION OR GET OUT OF THE THREAD, OBAMA.
And, by the way, the vast majority of FReepers have had radically different experiences than you have of American cars. Out of curiosity, how many miles do you drive a year?
It’s getting a bit personal. Time to stop that.
You know Spktyr-bama, Republicans could get a lot more votes in battleground states, if people like you would stop hating.
Yes I know, it’s a cliche and a buzzword, but you clearly have reached that point.
Until Detroit fixes their distribution and maintainence side of their business.....I fully intend to remain far away from them.
Oops.
Point taken. :)
Knock off those damn envirowacko restrictions!! BAH!
If they made 60-80 MPH vehicles that Americans wanted, Congress would impose 100MPG!!!
There is no freeking end to this MADNESS.
oh there’s no question that cars made in Tennessee are very good. :)
it’s not about hate. Just make Michigan a right to work state, like many other states and cut taxes.
Still waiting for a straight answer.
Yes, or no?
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