Yesterday, I did a blog entry looking at how all these failed companies were lining up at the trough to get some of the $700 billion Paulson bailout package.
Now, The Wall Street Journal tells us that the Bush administration is working to facilitate loans to General Motors from the loans Congress approved for the auto industry. That would speed up the ill-conceived merger with that other auto industry cripple, Chrysler.
Deborah Solomon and Stephen Power from the WSJ write: "Bush administration is working to release to General Motors Corp. a portion of the loans Congress approved for the auto industry, according to a person familiar with the matter, a move that could help ease the way for the company's discussed merger with Chrysler LLC.
"GM and Chrysler's majority owner, Cerberus Capital Management LP, have been negotiating a complex deal in which GM would end up owning its smaller Detroit rival, but the parties have struggled to line up financing. The combined entity would need about $10 billion in new equity to cover the cost of laying off workers, closing plants and integrating the two companies, say people involved in the talks.
The government loan, which may total around $5 billion, would come from the $25 billion in low-interest loans approved by Congress and being administered by the Energy Department. The funds are aimed at helping Detroit retool plants to meet new fuel-efficiency standards. It isn't clear how quickly the money could be made available or whether it would come with strings.
"Although the loans are supposed to speed the availability of fuel-saving technologies, the money could help steady GM's finances and make it easier for the struggling auto giant and Cerberus to persuade investors to back a merger. Any transaction would involve both Chrysler and GMAC LLC, which loans money for car purchases and other purposes. Cerberus owns 51% of GMAC and GM owns the rest.
"Both GM and Chrysler are losing money. Analysts believe each company could start to run short of cash within 12 months.
br />"The auto makers and Michigan's congressional delegation have proposed at least three plans in recent weeks to unlock federal money for a GM-Chrysler merger. One is to seek an equity investment from the government. Another would draw money for the auto makers from the $700 billion Troubled Asset Relief Program, or TARP, set up ostensibly to help financial firms. A third possibility is accelerating the $25 billion in loans that the Energy Department is managing.
"GM and Chrysler declined to comment.
br />"An Energy Department spokeswoman said Monday the agency is "in the process of developing the rules for the loan program" and that it would be "premature" to set a timetable for when funds will be available. The agency has come under criticism from prominent Michigan figures in both parties after initially saying in September it could take 'at least six to 18 months or more' to disburse loans.
"On Monday, Moody's Investors Service lowered its ratings on GM and Chrysler. Even with the government loan program, Moody's said in a statement, "GM's liquidity profile will continue to erode in 2009" and Chrysler's ability to cover cash requirements may come under stress in 2009. Both GM and Chrysler had their ratings lowered one notch to Caa2. That's eight notches below investment grade. Moody's said it outlook for GM is negative and that it may cut Chrysler's rating again.
"Ford Motor Co. is rated B3, six levels into "junk," or non-investment grade, territory. Its rating is on review for possible downgrade, Moody's said."
There would undoubtedly be some immediate benefits if General Motors succeeds in being bailed out by the US Government. The Automotive Industry is an enormous employer not to mention the workforce engaged by the tens of thousands of smaller component manufacturers that depend on GM for their existence.
General Motors has however failed to modernize it’s thinking by not investing in new technology to reduce our reliance on fossil fuels with it’s continued use of the internal combustion engines developed almost 150 years ago by Etienne Lenoir.
As with other car manufacturers, General motors has also engaged in the practice of planned obsolescence to ensure cars have a finite life. This not only pollutes our environment but undervalues our finite resources used to manufacture cars.
Add to this that General Motors has paid very little in taxes over the years and a picture begins to emerge of a rapacious corporation not prepared to invest nor make a social contribution to the very consumer society that supports it.
Sure the U.S. Government must consider bailing out GM as so many workers depend on it but if it does, assistance should only be made on the proviso that GM lifts it’s game by developing a car for the future as well as making a positive contribution to society by paying it’s fair share of taxes.
We are living in a rapidly changing world hungry for answers that deal with the future needs of society. Today’s companies must not only operate to produce a financial benefit but must also plan to provide a social and environmental benefit or risk becoming irrelevant tomorrow.
hell no ! why should the american people pay for GMs stupid managment
Not to bailout the last three American Automakers would be unpatriotic. In 1997 General Motors was worldwide #1, Ford #4, and Chrysler #12 (OICA). There are no others from this country anymore.
May be most people do not realize that Buick, Pontiac, Dodge and other American names are only brands owned by these three.
See the Future-Headlines “American Automakers defeated by Germans and Japanese” – what an outcry would shake our country!
But – this bailout has to be done thoughtful. There must be some gain for the automotive workers and for us, the Tax-Payers. The situation now arose from actions mistaken and actions not done in the past, actions which are now long overdue.
Indeed the situation gives the chance to start a lot of initiatives for a grand overhaul which is long overdue: Retirement-Regulations which do not lead into nowhere, affordable Health-Insurance for every worker, even if he or she is unemployed and does not get unemployment money, Unemployment Money until there is a new job, for every American Citizen the right to have a home to live in, and on the other hand, there has to be a technological catchup. To save time, the best new technologies should be bought from other manufacturers.
And there is a chance to overcome the old decision to prefer individual traffic and invest in public transportation now!
After the oil crisis in the 1970s, the American auto industry pleated that it “needed time to grow strong enough to compete with the imports on the free market” and the Reagan Administration agreed to limit auto imports. The auto industry did not respond with the promised development of more fuel-efficient cars but merely increased its price an average $2,600 per new car and achieved record profits while selling fewer cars than in their record sales year in 1977! (Hudgins, Edward, 1985, The Heritage foundation, The costly Truth About Auto Import Quotas, http://www.heritage.org/research/energyandenvironment/EM74.cfm). This incident indicates that governments have to be more critical prior to interfering as they cannot only hurt consumers but can also ruin international relations with import restrictions.
Despite of this fact that we got screwed, I believe that our politicians in Washington will bailout the American Auto Industries. Why you asked? Because they already sent their lobbyists carrying bags full of money up capitol hill and deposited into those politicians’ campaign contribution funds.