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.
most people have money in banks. many people are simply not interested in the cars that come out of Detroit.
[”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.” ]
I’m sure to you it does. It is someone else’s money afterall, and it should buy you lots of votes.
and they provide jobs in conservative states!
Ken, you're late to the party. My last new American car was a 1982 Pontiac Phoenix that was a piece of crap. I traded it in on a 1977 Toyota back in 1985, and was lucky to get it, with the dealer paying off what I owed on the Phoenix.
Never again.
Another “bash stupid American workers” thread?
Charming.
Ever wonder how it is, conservatives end up with some, of the stereotypes?...
How about conservatives take a strong and visible stand for AMERICAN COMPANIES for a change?
Against outsourcing. Against trade deficits.
Against sending our best jobs to foreigners who hate us, and who are taking away our way of life.
Just a thought.
I’m going to quit paying my mortgage and apply for $1 Billion for my construction company.
I’d rather buy a Japanese car made with American values than an American car made with Soviet values.
yeah let’s stand for American companies like freddie mac and fannie mae!
We saw this one coming soon as they started bailing other people out.
I’m a dying industry: strong, independent, self-sufficient. Where do I get my handout?
I agree. this doesn’t bother me nearly as much as the bailout of the banksters, unlike whom Detroit is actually involved in the creation of real wealth.
yeah, i know.
i labored long under the idea
“buy american”.
not any more.
now i buy what i like and what i believe to be quality.
If we didn’t spend more money buying foreign imports, than we take in selling exports, we wouldn’t be in this mess.
But scr@w Detroit!
Scr@w unions!
Who cares what happens to the economy, or to our country!
Just so long as we can shaft unions, it’s all ok.
Right?
ken21: “these 3 companies should have planned fuel-efficient cars beginning in 1974.”
They didn’t put their money into fuel-efficient cars because oil was inexpensive and Americans wanted gas guzzlers. They are in the business to sell cars, not make products that people don’t want. Even Toyota, Nissan, etc were taken by surprise. If you hadn’t noticed, they were recently trying to enter the lucrative SUV market. Now they are scrambling just like the so-called US manufacturers to shift production to fuel-efficient vehicles.
That’s what happens when you spend 30 years pissing all over your customers and playing the “where ya gonna go” game - then realize that your customers have all left and that you really need them.
Bash bash bash.
Stupid American workers.
/s
Obviously your Chevrolet was so well built that you didn’t want to buy another... tell us about how well it didn’t work (so we can shove it up the back passages of those people who blindly promote American cars uber alles).
By the time they are done they will be sending a billion dollar check to every resident of the USA.
Were you dropped on your head by a Steelworker, as a child?
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