I expect much the same results as with the original holder of that logo...
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.
Except for those made in Spring Hill. :D
Oy vey!
I answered your question, a couple times now:
Your premise ... is false.
That is my answer.
other companies have no problem adapting to these regulations or anything else that’s out there. I’m not for these regulations but there will always be something else to deal with.
there are numerous other problems with the big 3 undiscussed here.
for example, for decades in car mags and in newspaper articles,
people criticized the huge bureaucracies in the auto industry.
welfare for the unions, welfare for management.
no, you don’t know what you’re talking about the auto co’s said.
and they continued to make cars that people didn’t want.
here look at our super concept car! but buy our pos.
i don’t feel sorry for the big 3.
chrysler should not have been bailed out.
The premise is not false. It’s a simple yes or no question, which you have refused to answer on two threads now.
Others on the last thread agreed that it was not false.
It should be a simple answer. Should I buy an inferior/defective good that costs more than the higher quality competition in order to “preserve American industry”? It’s a simple question. You have yet to answer it.
America is all about capitalism, competition and freedom. Take that away and we’re basically soviets that speak english instead of russian.
Eh.. I think the Chrysler “Bailout” was actually not a bad idea at the time, as Chrysler was, at the time, a critical defense contractor (they made our main battle tanks).
The other reason the Chrysler bailout wasn’t a bad idea was that Chrysler showed up to ask with a clear business case, clear business plans, and competitive/comparable new product in the pipeline. GM and Ford at this point have none of the above. Chrysler said “We have a plan, we have product, we just need a little time and money to fix our problems.” GM and Ford are saying “Give us money and by doing business as usual we will fix our problems.”
Also, don’t forget that Chrysler was required to divest themselves of all but their core car business as part of the terms of the bailout. GM and Ford 1) don’t make any critical defense industry product, and 2) don’t have any non-core businesses left to sell.
I agree it the unions that are breaking the big three even though they obviously agreed to the terms. But paying a labor pool to do nothing is mind boggling as is high dollar pay for relatively unskilled work.
I know as a former union member: “It’s a living wage” and “the Dems supply it most often”.
So while everyone say look over there the auto makers break one off in you with their own little bailout and the POS in congress don’t even bring it up. My next auto will be an import.
Just for the record, I own two Fords and one Dodge, all more than 5 years old and all have been excellent reliable vehicles. I won’t need another vehicle for a good while but when I do I will buy American.
I boycott union made products when possible. Even if a product was not union made, it would be difficult to avoid buying an inferior product just because it was American made. If the products were comparable, I would buy the non union American made product.
Where does this nonsense end? If $25B is not enough, will Congress grant them additional loans? Will Congress take direct control of the auto industry? What other industries will ask for a bailout?
Whatever. We disagree, on that we can probably agree.
You go ahead and send your money to some worker in Seoul, Tokyo or Guadalajara. Driving down the value of the US dollar in the transaction, in turn driving (up) the price of gas for us in America.
It’s simple math. We spend money as a country, we have less to spend. We become ... poorer.
If the number of dollars that (decreasing) national wealth is divided by, remains constant ... those dollars are each, all worth less. Smaller numerator. Constant denominator. That’s called “division”.
Buying foreign imports, causes that. Now, about the wisdom of bailing out Chrysler. I think that was another poster, but it’s a good topic to consider, as we discuss whether bailing out US auto companies “works”...
My single vote:
I’ve already got my car-purchasing consuming eye, on one of those American plug-in gas/electric hybrid Chrysler Jeep Wranglers (same concept as the Chevy Volt), due to compete with the Chevy Volt not too long from now — which was announced this weekend. :)
Wakarimasuka?
Sorry, I drive an early 90’s Pontiac economy car that gets me 38 MPG on the highway (seriously), has about 200,000 miles on it, and hasn’t had a serious malfunction. When I have to replace something, which isn’t often, I use the more expensive dealer or American-made aftermarket parts. They last a really long time, and it saves me more work later on.
BTW, I agree with you on the Japanese. They typically make high quality parts, but they aren’t exactly inexpensive either. My point is you should stop bashing American-made products. As a country, we still produce a wide variety of high quality goods. That includes cars.
“and I assure you the American-made parts are a cut above. “
Not the 2, less than 2 year old Fords that I own.
This May I put a new transmission in one (a Windstar van with less than 70,000 miles on it)$3,500. And a new exhaust system in the other, about $800 as the catalytic converter was damaged.
Should I continue my 30 year loyalty to the Ford brand?
Looks like another big waste off my tax paying money.
In fact they are a little too good for my benefit.
Set it to music and get a tin cup, a little monkey and an organ.
How about you taxpayers give me $25 billion and I loan it to the automakers at say 4% interest for the next 30 years.
I have to agree, but they played into politicians hands and they're still being padded for it. IMO.
Unions should be left to destroy the companies they shake down.
It's a good way to get rid of the corruption.
I expect much the same results as with the original holder of that logo...
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