This is an update to:
Bailout Plan For Automakers Expected To Face Republican Opposition
CIA Stock photo, Inc.
Facing an uphill battle in Congress and stiff opposition from President George W. Bush, supporters of a government bailout for the sinking U.S. auto industry are offering to reduce its $25 billion size.
General Motors Corp., Ford Motor Co. and Chrysler LLC, battered by an economic meltdown that has choked their sales and frozen credit, are lobbying lawmakers furiously for an emergency infusion of cash. GM has warned it might not survive through year’s end without a government lifeline.
Other auto suppliers and dealers with showrooms empty of customers plan to join the effort Monday when Congress returns following the Nov. 4 elections. The key Senate vote on preventing opponents from blocking the package could occur as early as Wednesday.
“There’s a need for immediate action,” Alan Reuther, the United Auto Workers union’s legislative director, said Friday. He said one option under consideration was a smaller, more targeted amount of funding “that would get the companies through to March.”
The credit crunch and slumping economy have depressed U.S. auto sales to levels not seen in about two decades. Once-mighty GM says it could run out of cash by next summer. Ford has a slightly better prognosis, but only because it arranged a hefty line of credit in 2006.
Privately held Chrysler is playing its financial status close to the vest. But the company’s chief exec, Bob Nardelli, said last week that it would be “very difficult” to survive without Uncle Sam’s assistance.
Though a number of people I spoke with said they’d reluctantly support a bailout of Detroit rather than see the companies disappear, most said this would be rewarding failure after decades of mismanagement and poor decision making.
Bailout recipients would be limited to no more than three brands, eliminating redundancies and bloated dealer networks. Does GM really need seven brands (Chevy, GMC, Pontiac, Buick, Cadillac, Saturn and Saab)? I don’t think so.
GM would have to decide which brands represent its future and which ones are roadkill.
GM chief Rick Wagoner has said bankruptcy isn’t an option because it will scare off customers, and GM’s cash needs are so great — $10 billion to $15 billion at least — that it would be unable to raise the money it needs to emerge from bankruptcy in the current credit environment.
But GM still has options. It could sell assets, tap its overfunded pension plan and take what it can get from the capital markets.
None of these are things a healthy company wants to do, but saving GM requires desperate measures. Employees will lose their jobs, but they’ve been losing them anyway. Bankruptcy would allow GM to keep operating, muting the impact on its suppliers.
Bankruptcy also would wipe out millions of common stockholders, exacerbating 401(k) and investment losses nationwide. With GM’s shares trading under $3, though, bankruptcy wouldn’t be much more of a beating than Wagoner’s already given them.
The concern is mostly moot. As for customers, last month’s plunging sales seem to indicate GM’s financial woes have already scared them from the car lots. Are they more likely to buy a car from a nearly bankrupt company?
The point of the Democratic bailout is to protect the unions by preventing this kind of restructuring. Which will guarantee the continued failure of these companies, but now they will burn tens of billions of taxpayer dollars. It’s the ultimate in lemon socialism.
Democrats are suggesting, however, an even more ambitious reason to nationalize. Once the government owns Detroit, it can remake it. The euphemism here is “retool” Detroit to make cars for the coming green economy.
Liberals have always wanted the auto companies to produce the kind of cars they insist everyone should drive: small, light, green and cute. Now they will have the power to do it.
In World War II, government had the auto companies turning out tanks. Now they would be made to turn out hybrids. The difference is that, in the middle of a world war, tanks have a buyer. Will hybrids? One of the reasons Detroit is in such difficulty is that consumers have been resisting the smaller, less powerful, less safe cars forced on the industry by fuel-efficiency mandates. Now Detroit would be forced to make even more of them.
UPDATE: November 15, 2008 11:41 pm
Stymied by one last stalemate with the Bush administration, the Democratic Congress has released a scaled back auto industry bailout that would force Detroit to embrace more fuel efficient cars and new auto technologies.
Speaker Nancy Pelosi, in a Saturday afternoon announcement, says the House plan would require existing funds from the $700 billion Troubled Asset Relief Program (TARP) to be used to help the auto industry, meaning no new money would be authorized by Congress under this plan.
Pelosi said the auto industry funds would come with many strings attached, including restructuring company finances, meeting new standards for gas mileage and requiring advanced technologies “to compete in the domestic and global market.” The speaker’s office offered no specifics about what the new fuel efficiency standards would be and what types of technologies would be required for the auto industry.
“Recognizing the severe challenges facing the domestic automobile industry, whose failure could jeopardize millions of jobs here at home and have a devastating impact on our economy, the House Democratic bill will provide immediate, targeted assistance to allow the car makers, together with affected unions, time to develop a plan to assure the long-term viability of the industry,” Pelosi said Saturday in a statement.
