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A $25 Billion Lifeline for GM, Ford, and Chrysler
US News and World Report ^ | 9/24/2008 | Rick Newman

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.


TOPICS: Business/Economy; Culture/Society; Government; News/Current Events; US: Michigan
KEYWORDS: 110th; automakers; automotive; congress; financialcrisis; fordmotor; generalmotors; govwatch; letemdie; morebailouts; taxpayersscrewed
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1 posted on 09/24/2008 6:58:14 PM PDT by bruinbirdman
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To: bruinbirdman
Its an election year and no one is going to kiss off Michigan's electoral votes. Besides, blue collar workers jobs are worth saving, since they do productive work that benefits America.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

2 posted on 09/24/2008 7:00:34 PM PDT by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives In My Heart Forever)
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To: goldstategop

I can’t take it much longer! UGH!!!!!


3 posted on 09/24/2008 7:02:05 PM PDT by Comparative Advantage
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To: bruinbirdman

Handouts for everyone!


4 posted on 09/24/2008 7:02:07 PM PDT by mylife (The Roar Of the Masses Could be Farts)
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To: goldstategop

Michigan will go DEM, as always; and Detroit will continue to churn out crap cars.


5 posted on 09/24/2008 7:02:36 PM PDT by Arm_Bears (Wag more; bark less.)
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To: bruinbirdman

I hope D.C. leaves me enough for ammo for the armed revolution they are inviting.


6 posted on 09/24/2008 7:03:16 PM PDT by Sig Sauer P220 (Conceal carry - Don't leave home without it.)
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To: bruinbirdman

You can’t really blame the auto industry. It’s hardly a free market any more, what with all the government safety, environmental, labor, and fuel efficiency regulations. The auto industry is pretty much controlled by the federal government already. Sigh!


7 posted on 09/24/2008 7:03:21 PM PDT by CitizenUSA (Voting proudly for GOVERNOR Palin for VP!)
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To: bruinbirdman

Alright, this is just blatant graft. There is no argument to be made that not helping Detroit will cause the currency to collapse.


8 posted on 09/24/2008 7:04:43 PM PDT by Tublecane
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To: CitizenUSA
You can’t really blame the auto industry. It’s hardly a free market any more, what with all the government safety, environmental, labor, and fuel efficiency regulations. The auto industry is pretty much controlled by the federal government already. Sigh!

Your point is proven by the fact that autos are selling so well in other countries, especially GM autos. Our regulations, of many industries (except the ones that count-See Fannie and Freddie), will put us in debtors' prison.

9 posted on 09/24/2008 7:05:47 PM PDT by madison10 (Pray every day for McCains, Palins and the USA...and the rest of us, too.)
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To: bruinbirdman

Who knows whether these companies could not have obtained funds from the private markets if the f———g Rats and their affirmative action welfare housing bubble had not broken the capital and credit markets.


10 posted on 09/24/2008 7:05:47 PM PDT by SirJohnBarleycorn
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To: Comparative Advantage
I agree. I think the American auto industry is worth saving. I don't think the paper pushers on Wall Street are worth the money. Just my opinion.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

11 posted on 09/24/2008 7:06:43 PM PDT by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives In My Heart Forever)
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To: bruinbirdman
Dear Washington,

I own a failing auto company. Please send help, preferably nine zeroes worth.

Sincerely,
July 4th
12 posted on 09/24/2008 7:07:48 PM PDT by July 4th
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To: bruinbirdman

I wonder how soon the tank and aircraft lines will reopen. We’ll probably need Hummers by the tens of thousands when the next war breaks-out just in time to right the economy. /Sarc


13 posted on 09/24/2008 7:07:48 PM PDT by CARTOUCHE
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To: bruinbirdman

whatta joke!

these 3 companies should have planned fuel-efficient cars beginning in 1974.

meanwhile, we’ve had to pay higher prices for inferior cars,

and support their unions.

i resent unions and their influence into american politics.

no more! yesterday i bought a honda. my last vehicle was a 2003 chevrolet.


14 posted on 09/24/2008 7:08:03 PM PDT by ken21 (people die and you never hear from them again.)
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To: madison10

they do well where there are weaker unions. pumping money into an industry dominated by the UAW is money that will go down the drain


15 posted on 09/24/2008 7:08:12 PM PDT by ari-freedom (We never hide from history. We make history!)
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To: goldstategop

I’m all in favor of blue collar jobs from companies that don’t screw their consumers. The Japanese-run auto companies operating in America without unions provide those jobs, and turn a profit the old fashioned way - by earning the loyalty of their customers!


16 posted on 09/24/2008 7:08:46 PM PDT by hunter112 (Gov. Palin is ten times the woman Hillary could've hoped to be, if she had stayed a "Goldwater Girl")
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To: goldstategop

I can appreciate that. As you said, at least they actually produce something besides paper.


17 posted on 09/24/2008 7:08:49 PM PDT by Comparative Advantage
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To: bruinbirdman

We are France!


18 posted on 09/24/2008 7:08:52 PM PDT by fuente
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To: bruinbirdman

We are France!


19 posted on 09/24/2008 7:08:59 PM PDT by fuente
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To: bruinbirdman

We are France!


20 posted on 09/24/2008 7:09:18 PM PDT by fuente
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To: goldstategop

most people have money in banks. many people are simply not interested in the cars that come out of Detroit.


21 posted on 09/24/2008 7:10:12 PM PDT by ari-freedom (We never hide from history. We make history!)
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To: bruinbirdman

[”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.


22 posted on 09/24/2008 7:10:32 PM PDT by KansasGirl (READ MY LIPSTICK!!!)
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To: hunter112

and they provide jobs in conservative states!


23 posted on 09/24/2008 7:11:08 PM PDT by ari-freedom (We never hide from history. We make history!)
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To: ken21
yesterday i bought a honda. my last vehicle was a 2003 chevrolet.

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.

24 posted on 09/24/2008 7:12:17 PM PDT by hunter112 (Gov. Palin is ten times the woman Hillary could've hoped to be, if she had stayed a "Goldwater Girl")
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To: Arm_Bears

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.


25 posted on 09/24/2008 7:13:06 PM PDT by Cringing Negativism Network (CHEVY VOLT COUNTDOWN: V minus 92 Weeks. Waiting...)
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To: bruinbirdman
I drive a good old fashioned, red blooded, all American Toyota corolla. there is no comparison between it and Detroit's rubbish.America would be better off without the the UAW.
26 posted on 09/24/2008 7:13:19 PM PDT by bilhosty
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To: bruinbirdman

I’m going to quit paying my mortgage and apply for $1 Billion for my construction company.


27 posted on 09/24/2008 7:13:26 PM PDT by jsh3180
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To: hunter112

I’d rather buy a Japanese car made with American values than an American car made with Soviet values.


28 posted on 09/24/2008 7:14:19 PM PDT by ari-freedom (We never hide from history. We make history!)
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To: Cringing Negativism Network

yeah let’s stand for American companies like freddie mac and fannie mae!


29 posted on 09/24/2008 7:15:43 PM PDT by ari-freedom (We never hide from history. We make history!)
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To: bruinbirdman

We saw this one coming soon as they started bailing other people out.


30 posted on 09/24/2008 7:15:43 PM PDT by Domandred (McWhathisname / Palin - 2008)
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To: bruinbirdman

I’m a dying industry: strong, independent, self-sufficient. Where do I get my handout?


31 posted on 09/24/2008 7:15:48 PM PDT by gotribe (The right pick!)
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To: goldstategop

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.


32 posted on 09/24/2008 7:16:18 PM PDT by bereanway (Sarah get your gun)
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To: hunter112

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.


33 posted on 09/24/2008 7:16:39 PM PDT by ken21 (people die and you never hear from them again.)
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To: ari-freedom

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?


34 posted on 09/24/2008 7:17:05 PM PDT by Cringing Negativism Network (CHEVY VOLT COUNTDOWN: V minus 92 Weeks. Waiting...)
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To: ken21

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.


35 posted on 09/24/2008 7:21:33 PM PDT by CitizenUSA (Voting proudly for GOVERNOR Palin for VP!)
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To: ari-freedom

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.


36 posted on 09/24/2008 7:21:55 PM PDT by Spktyr (Overwhelmingly superior firepower and the willingness to use it is the only proven peace solution.)
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To: Spktyr

Bash bash bash.

Stupid American workers.

/s


37 posted on 09/24/2008 7:22:42 PM PDT by Cringing Negativism Network (CHEVY VOLT COUNTDOWN: V minus 92 Weeks. Waiting...)
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To: ken21

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).


38 posted on 09/24/2008 7:23:36 PM PDT by Spktyr (Overwhelmingly superior firepower and the willingness to use it is the only proven peace solution.)
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To: goldstategop

By the time they are done they will be sending a billion dollar check to every resident of the USA.


39 posted on 09/24/2008 7:23:49 PM PDT by trumandogz (The Democrats are driving us to Socialism at 100 MPH -The GOP is driving us to Socialism at 97.5 MPH)
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To: Spktyr

Were you dropped on your head by a Steelworker, as a child?


40 posted on 09/24/2008 7:24:12 PM PDT by Cringing Negativism Network (CHEVY VOLT COUNTDOWN: V minus 92 Weeks. Waiting...)
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To: ken21

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.


41 posted on 09/24/2008 7:24:20 PM PDT by Pan_Yans Wife
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To: Cringing Negativism Network

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.


42 posted on 09/24/2008 7:24:58 PM PDT by Spktyr (Overwhelmingly superior firepower and the willingness to use it is the only proven peace solution.)
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To: Cringing Negativism Network

I used to *be* a union worker.

I despise American unions now.


43 posted on 09/24/2008 7:25:39 PM PDT by Spktyr (Overwhelmingly superior firepower and the willingness to use it is the only proven peace solution.)
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To: mylife
Handouts for everyone!

And Brack-O wants a second, larger round of stimulus checks.....bring it on.

44 posted on 09/24/2008 7:25:49 PM PDT by ErnBatavia (...forward this to your 10 very best friends....)
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To: Cringing Negativism Network
So, you're saying this was a good, high quality car?

No, the Big Three spent years screwing their customers. Now they reap what they have sown.

45 posted on 09/24/2008 7:28:01 PM PDT by Spktyr (Overwhelmingly superior firepower and the willingness to use it is the only proven peace solution.)
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To: ken21

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.


46 posted on 09/24/2008 7:28:26 PM PDT by CitizenUSA (Voting proudly for GOVERNOR Palin for VP!)
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To: Spktyr

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.


47 posted on 09/24/2008 7:29:03 PM PDT by Cringing Negativism Network (CHEVY VOLT COUNTDOWN: V minus 92 Weeks. Waiting...)
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To: bruinbirdman

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.


48 posted on 09/24/2008 7:30:13 PM PDT by Xenophon450 (I guess I'll never know, some things under the sun can never be understood...)
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To: CitizenUSA

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.


49 posted on 09/24/2008 7:31:02 PM PDT by Spktyr (Overwhelmingly superior firepower and the willingness to use it is the only proven peace solution.)
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To: CitizenUSA

i’m selling my 2003 chevrolet privately,

you wanna buy it?


50 posted on 09/24/2008 7:31:24 PM PDT by ken21 (people die and you never hear from them again.)
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