To Debbie does Detroit, a hundred pounds seems so small.
yitbos
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.
To Debbie does Detroit, a hundred pounds seems so small.
yitbos
You put 70,000 miles on the vehicle in under 2 years of driving? Assuming you purchased them new and properly maintained them throughout, I’d say you got unlucky this time. Cars are extremely complex and getting more complex every year. No matter what, premature failures occur. They happen with Toyota and Nissan, too. I know that’s small consolation if you feel you personally were screwed, but a lot of people put 70,000 miles on their Fords with no serious problems whatsoever. If you look at the rating agencies, you’ll see that American cars rate pretty well. They aren’t perfect, of course, but nothing ever is.
The American automakers should be allowed to fail if that is their fate. The mistakes of management combined with unreasonable union demands and caused the catastrophes that currently plague them. More money with no strings attached will just encourage them to repeat the mistakes of the past, and this should not be allowed.
“Unions should be left to destroy the companies they shake down.
It’s a good way to get rid of the corruption.”
-
Clue for sale:
Communist China (which we’re sending our factories to) is one, big. Big. Big Union.
The Union Bosses?
The CCP Central Committee.
As long as we’re supporting unions, let’s at least support AMERICAN unions.
Just a thought.
/s
In all seriousness, dude, we're not bashing the American autowrokers. We're not calling them stupid. However, this doesn't mean that we should bail these companies out. They've been mismanaged for the last decade+, and now I think it's time to let them fail. I'm tired of taxpayer money being dispensed with no strings attached. If they want a taxpayer bailout, they need to have more taxpayer intervention in their operations. I realize that I'm proposing socialism-but who is forcing these companies to take taxpayer dollars? Is the federal government running to Detroit and telling GM that they MUST take this money? NO. I don't think it's unreasonable to expect an American company seeking money (TAXPAYER money) to agree to some preconditions before the money is released.
“Buy Chinese”!
/s
I have my last ford 250, transmission went out at 120,000, completely rebuilt front end, last month, tail gate fell off at about three years of age. You want me to tell you about my nephews ford f350, he had the ford dealer rebuilt the transmission twice, it was going bad when he sold it.
So, tell me why merp’s (on this board) Terminator Cobra has a rag used as an insulator between the gas tank skid plate and the gas tank, why Ford screwed up the undercoating and it’s started to rust (or did before we got to it), and the Taurus bushings in the rear IRS are shot after less than 30,000 miles?
Ford makes better vehicles than they used to, they’re not embarassing any more per se... but they’re not “fine”. As a Jaguar owner and fanatic, the Jags that were shared Ford designs were actually worse than the last Jaguar-only designs that preceded them.
yitbos
I don’t support any Union..
My son bought a new Ford this year and the transmission went bad on it when it was still brand new. They offered to put a rebuilt tranny in for him. He told them to put in a new one or talk to his lawyer.
/s
Probably 70% of the parts are made in china today.
I'll never buy an American car again. Not after my dad's experiences with Dodge Caravans and Plymouth Acclaims.
I do not recognize the logo. It looks a little like CBS.
Therein, lies the hugh irony.
You buy nothing made in China?...
Just what, do you suppose the Communist workers (contracted) from the centrally controlled Chinese government (which controls all hiring and personnel matters in “American” factories there), represent?
One. Increasingly powerful. Increasingly skilled.
Union.
Fundamentally hostile, to our national security.
If you honestly don’t support *that* union with your purchases almost every day - the largest and most powerful labor union on Earth - I will retract.
Somehow, I don’t think I’ll have to.
It’s a modded version of the British Leyland logo - you know, the *last* big nationalized auto conglomerate?
bump
Can I have a bailout? Maybe I can give myself a $22 million bonus, resign, and then have the government honor my debts?
It's not like their strategic materials, eh?
yitbos
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