Democrats at work to tap bailout for automakers

[TheLancinator]

Democrats at work to tap bailout for automakers
By KEN THOMAS, Associated Press Writer


WASHINGTON – Congressional Democrats are marshaling support for a rescue package to pump $25 billion in emergency loans to U.S. automakers in exchange for a government ownership stake in Detroit's car companies.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, and Sen. Carl Levin, D-Mich., are developing legislation that would let the auto industry tap into the $700 billion Wall Street rescue money, approved by Congress last month, to fund their business operations.

General Motors Corp., Ford Motor Co. and Chrysler LLC are lobbying Congress to approve the aid, citing an economic downturn that has choked off auto sales, frozen credit and made them vulnerable. GM, the nation's largest automaker, posted a $2.5 billion quarterly loss Friday and has predicted it could run out of cash by the end of the year without government help.

"The reason why the autos are in this challenge is because of the meltdown in the financial market," said Michigan Gov. Jennifer Granholm. "They were on a restructuring path — yes, they were challenged — but this has utterly kicked them in the gut and is strangling them because they can't borrow money."

The legislation could set up a congressional showdown with the White House during President George W. Bush's final days in office. House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., are hoping for quick passage of the auto bailout during a postelection session that begins Monday.

Bush is open to helping the industry, the White House says, but the administration has expressed reservations about using the bailout money beyond the financial sector.

Treasury Secretary Henry Paulson said Wednesday that the auto sector was "critical" but that the financial industry rescue was not designed for car companies. "Any solution has got to be leading to long-term viability" for auto companies, Paulson said.

Republicans in the Senate could play a key role in whether the rescue plan advances. Some Senate Republicans who opposed the Wall Street bailout before the election have expressed skepticism that the aid would lead to changes for the companies.

Senate Republican leader Mitch McConnell of Kentucky, which is home to two Ford Motor Co. plants, was noncommittal about additional aid. In a statement, his spokesman said Congress should move to speed the release of a $25 billion loan program passed earlier to help the carmakers develop fuel-efficient vehicles.

Sen. George Voinovich, R-Ohio, who co-chairs the Senate Auto Caucus, said through a spokesman Thursday that he would support using bailout money to assist the companies because "helping the automakers remain viable is truly putting Main Street over Wall Street."

Frank's legislation would carve out a portion of the $700 billion financial rescue program for the Big Three automakers, letting the government take an equity stake in them in exchange for the loans, said Frank's spokesman, Steven Adamske.

The Treasury could take warrants to share in a portion of future profits and would have to be paid back before any other shareholder. The car companies would face tougher restrictions on awarding pay packages to executives and dividends to their shareholders than the financial companies that get a piece of the original bailout.

Auto executives, labor leaders and other industry proponents are seeking an immediate $25 billion loan to keep the companies operating. Union officials are also hoping for a separate $25 billion to help cover future health care obligations for retirees and their dependents.

Beyond the car companies, lawmakers may hear from a broad coalition of manufacturers seeking aid. Auto suppliers, which carry a wide manufacturing presence in Michigan, Indiana, Missouri, Ohio, Tennessee and Illinois, are seeking a piece of the rescue.

"There's so much connection between the buyers and the manufacturers that we feel that the program has to be inclusive," said Ann Wilson of the Motor and Equipment Manufacturers Association.

The National Automobile Dealers Association, which represents nearly 20,000 new car and truck dealers, supports an automobile stabilization package, said spokesman Bailey Wood.

Executives with the Detroit automakers and the head of the United Auto Workers are expected to make their case at a hearing next Wednesday before Frank's committee. A House vote on Frank's measure could come as early as next Thursday.

Democratic leaders also are considering pairing the measure with a broader economic aid bill, including money for unemployed workers whose jobless benefits have run out, aides said.

[Meursault]

I think it's a no-win situation for the government. By rights, the US car industry should not get access to the bailout fund because their decline is only remotely connected to the financial crisis. From a market economy point of view, it would be correct to let them fend for themselves and not shove more taxpayer money down their throats without any guarantee that they won't be back in a year asking for more. So the only acceptable form of government help would be to allow the Big Three's financial services units to apply for help from the bailout fund and demand that the industrial divisions fix their problems themselves because they created them, too.

On the other hand, it is pretty much certain that a large part of the public would blame the government for the job losses a bankruptcy of one or all of the big three would cause, even though it is their former management and the unions who messed things up.

And finally, the financial sector gets bailed out even though they are responsible for the crisis, so how do you justify letting other sectors go bust once they maneuvered themselves into trouble?

[TheLancinator]

Exactly...the Feds set a dangerous precedent by bailing out the financial companies responsible for this mess. As much as I would like to see the Big 3 left to their own devices, how could the government justify letting them go belly up while they bailed out places like AIG, especially when we are talking about a massive amount of jobs that would most likely be lost. What would that do to an already fragile econonomy?

[AnthemZ]

It's right what you say! But it's a little more then "only remotely connected to the financial crisis"! No loans means no cars sold! It's not like in Europe where most people pay cash for their cars, in the U.S. almost all cars sold are on credit in one form or another!

[DemonGeminiX]

Business 101: If the consumer does not want the products or services a business provides, then that business won't make any money. If a business cannot make money, then that business is doomed to fail. A failed business will be replaced with a smarter business that will give the consumer what they desire, and that business will make money in doing so. That is the cycle of business.

If people don't want to buy the vehicles the big 3 are selling, then they shouldn't get paid through the back door with our tax dollars. We'll just be giving them money and not getting anything in return. I don't like this new welfare system for Wall Street and the auto industry. Let them fail. Make them learn. Sure, times will be tough, but eventually, we'll claw our way back to the top again, like we always do.

[TheLancinator]

Originally Posted by DemonGeminiX

Business 101: If the consumer does not want the products or services a business provides, then that business won't make any money. If a business cannot make money, then that business is doomed to fail. A failed business will be replaced with a smarter business that will give the consumer what they desire, and that business will make money in doing so. That is the cycle of business.

If people don't want to buy the vehicles the big 3 are selling, then they shouldn't get paid through the back door with our tax dollars. We'll just be giving them money and not getting anything in return. I don't like this new welfare system for Wall Street and the auto industry. Let them fail. Make them learn. Sure, times will be tough, but eventually, we'll claw our way back to the top again, like we always do.

Then what exactly do you say to all the employees of Ford and GM when they ask why the people at AIG still have jobs when the execs there are partying on the taxpayer dime, yet they will now be without a job? Especially when the loans/bailout the Big 3 are seeking pales in comparison to what the Fed is giving to the financial sector?

[DemonGeminiX]

Originally Posted by TheLancinator

Then what exactly do you say to all the employees of Ford and GM when they ask why the people at AIG still have jobs when the execs there are partying on the taxpayer dime, yet they will now be without a job? Especially when the loans/bailout the Big 3 are seeking pales in comparison to what the Fed is giving to the financial sector?

String those fucking AIG execs up by their nuts. None of them should have gotten one red fucking cent from the taxpayers. If they had made better decisions over time, then nobody would be in this mess. This whole crisis is about making stupid decisions over time. I know my opinion is a bit late considering the 700 billion that's already been passed, but make them pay for their mistakes... make them learn not to do stupid shit.

[TheLancinator]

That's the problem, the $700 billion has already been passed and the Fed set the precedent by bailing out companies like AIG. Ford and GM are much more important to the economy than AIG is, so in all fairness you have to keep them from failing. If you let the Big 3 fail, you are looking at upwards of a million people losing their jobs overnight...do you think that will have a good or a bad effect on our (and the worlds) economy?

And just for the record, I agree with you, none of this should have happened, but it's a little late to close the barn door now that the cows are out...

[DemonGeminiX]

Originally Posted by TheLancinator

That's the problem, the $700 billion has already been passed and the Fed set the precedent by bailing out companies like AIG. Ford and GM are much more important to the economy than AIG is, so in all fairness you have to keep them from failing. If you let the Big 3 fail, you are looking at upwards of a million people losing their jobs overnight...do you think that will have a good or a bad effect on our (and the worlds) economy?

And just for the record, I agree with you, none of this should have happened, but it's a little late to close the barn door now that the cows are out...

How do you know that giving them money will help things? Are you certain they won't do the same old shit that got them into this mess in the first place? And when the bottom falls out again, will they not just come back with their hands out again?

Yes, letting them fail will rip the economy apart. But if that's what needs to happen to make businesses learn that allowing certain moronic ideologies to prevail is bad, then so be it. Rebuild on more sound principles. It will be hard, people will lose jobs. But you can't solve a problem by just throwing money at it and hoping it goes away. People are losing jobs now and they will continue to, regardless. Throwing money at any of these businesses is just delaying the inevitable at cost to us. Even if it works in the short term, then eventually it'll happen again. And again, and again...

[Meursault]

Originally Posted by AnthemZ

It's right what you say! But it's a little more then "only remotely connected to the financial crisis"! No loans means no cars sold! It's not like in Europe where most people pay cash for their cars, in the U.S. almost all cars sold are on credit in one form or another!

That's true, but then again the japanese and european car makers run the same business model in the US and have far less problems even though their sales suffered as well. That's why I said it might be fair to help out the Big Three's credit divisions with the money from the bailout funds because they aren't much different from ordinary banks.

Originally Posted by DemonGeminiX

Business 101: If the consumer does not want the products or services a business provides, then that business won't make any money. If a business cannot make money, then that business is doomed to fail. A failed business will be replaced with a smarter business that will give the consumer what they desire, and that business will make money in doing so. That is the cycle of business.

If people don't want to buy the vehicles the big 3 are selling, then they shouldn't get paid through the back door with our tax dollars. We'll just be giving them money and not getting anything in return. I don't like this new welfare system for Wall Street and the auto industry. Let them fail. Make them learn. Sure, times will be tough, but eventually, we'll claw our way back to the top again, like we always do.

In theory, yes, that is how it should be. But I have said it many times before: the bailout is like a fall from grace. once the government grants a measure like this to one sector of the economy, there will be no return to innocence. Everybody will want their own bailout now. If you would follow a strict market liberal approach, it would have been necessary to let the financial sector fend for itself more than any other because they were the ones who started this downward spiral.

[Sertes]

Originally Posted by DemonGeminiX

But you can't solve a problem by just throwing money at it and hoping it goes away.

This one gets me split in half.

I agree with Lance as you should use the bailout money to help those in big difficulty first, then analyze the nature of the problem and solve it when economy stabilize.

Then again you have your point, and something that should be considered too and you don't tell explicity is that this money is people money, it comes from current taxes and future debt (inflation)... so someone is losing from it already, the common citizen is bailing out big enterprises, but the common citizen is working in them too... it's simply a mess.

[Tinysmasher]

I dont think the answer is to follow up one massive mistake with another.

This bailout was a bad idea, implemented poorly, to begin with.

[deepsepia]

Make this thread a sticky: Everyone has reasonable, sensible,logical things to say! Even when people disagree-- no one's saying "its very simple: you're a moron!" -- the comments reflect the complexity of the situation, and that there really are no "good choices" -- just your taste in a bad one.

I'll add only piece of information, which I think is relevant:

GM and Ford's international operations have long been profitable, and are internationally competitive. Its really North American operations that are the disaster area. Think about how strange that is-- two American companies, do quite well overseas, but lose money hand over fist in their home market. That's unusual.

This leads to my conclusion: GM and Ford actually do know how to run an effective, profitable auto company, and to build internationally competitive cars. Their labor and dealership agreements, which go back to a time when they had more than %50 of the auto market, are the problem. Everyone knows about the lousy labor, pension, healthcare costs, but the dealerships agreements are a huge burden on GM and Ford. Basically, their dealers are protected by State laws in almost every state-- the company can't close them or consolidate them without buying out the dealer. This problem is probably as big a factor as the labor agreements in wrecking these companies -- GM and Ford established their dealer networks between 1920 and 1960, they are often very wrong for today's economy and demographics.

A bailout which addressed bloated labor and dealership obligations might actually work. That could be through bankruptcy, or could be through a "sign or else" negotiation. A bailout which does not address both these issues can't work . . . "makework" jobs would be far cheaper for the taxpayer, if unemployment is what we're worried about.

[Meursault]

Originally Posted by deepsepia

Make this thread a sticky: Everyone has reasonable, sensible,logical things to say!

This may be an AS "first" . . . every point made here is a good one, and reasonable.

I'll add only piece of information, which I think is relevant:

GM and Ford's international operations have long been profitable, and are internationally competitive. Its really North American operations that are the disaster area. Think about how strange that is-- two American companies, do quite well overseas, but lose money hand over fist in their home market. That's unusual.

That is only partly correct. Take Opel/Vauxhall for example. GM nearly ruined these two brands by forcing them to use technology from US GM models and to reduce their proprietary R&D departments, so the cars became so crappy that even the longstanding renown of the brands didn't keep sales from falling. Opel/Vauxhall have implemented a quality offensive in recent years and were beginning to regain market shreas until the crisis hit them and GM started to drain more and more capital out of them to support its US operations. Only today Opel asked the german government for a billion-euro credit guarantee:

http://www.spiegel.de/wirtschaft/0,1518,590495,00.html

So at least in GMs case the central management has proved that they are able to ruin two viable businesses in one go.

[AnthemZ]

Originally Posted by Meursault

That is only partly correct. Take Opel/Vauxhall for example. GM nearly ruined these two brands by forcing them to use technology from US GM models and to reduce their proprietary R&D departments, so the cars became so crappy that even the longstanding renown of the brands didn't keep sales from falling. Opel/Vauxhall have implemented a quality offensive in recent years and were beginning to regain market shreas until the crisis hit them and GM started to drain more and more capital out of them to support its US operations. Only today Opel asked the german government for a billion-euro credit guarantee:

http://www.spiegel.de/wirtschaft/0,1518,590495,00.html

So at least in GMs case the central management has proved that they are able to ruin two viable businesses in one go.

Here in Switzerland, people love their Opel's! My father in law swears by them, that's all he'll buy!