Should Govt Loan $25BN To Detroit Automakers?

[jyl]

Ford, GM, and Chrysler are lobbying hard for $25 billion in low-interest loans. The stated purposed is to help them modernize factories and develop high-MPG technology.

My view, cold-hearted as it may be:

1. The failure of Ford, GM, or Chrysler would not cause a systemic failure for the US economy. It would be bad for some states, but with so much Japanese and Europe auto production in the US now, the share shift would benefit other states. They lost their investment grade debt ratings long ago, I wouldn't think their BKs would stun the financial markets.

2. They already have high-MPG technology. The gas and diesel models they make and sell in Europe get high MPG and compete successfully in a market that is far more demanding of MPG (km/l) than the US. E.g. Ford has a 55 MPG Focus diesel in Europe, GM also has high MPG models in Europe. The companies have these cars, they chose not to bring them cars here.

3. Modernizing factories is not their real problem. Of the cost to make a car, Detroit's disadvantage is primarily in labor, retirement, medical costs - not so much in factory efficiency. And in net revenue per car, Detroit's problem is that their cars aren't desirable and require big discounts.

4. To "fix" Detroit, it would be more effective for those companies to go into bankruptcy. Wipe out their union contracts, eliminate pension obligations and retiree medical programs, liquidate their excess property/factories, and forcibly restructure their dealer networks. While brutal, that would leave them better off than simply taking on an additional $25BN of debt.

5. The govt has pumped money into financial companies, where there is systemic threat to the entire US economy. But look at the terms - the govt is wiping out shareholders, forcing out top executives, and in AIG's case forcing the company to essentially break itself up and liquidate over time. I'm not seeing Detroit volunteer for similar treatment.

Conclusion: I do not think Ford, GM, or Chrysler should get these loans. I'll be writing my Congressmen about it.

Other views?

[turbo6bar]

Yank $25BN from the Paulson rape program and give it to the big three. Paulson then gets $675BN of play money.

[Zef]

Why not...to develop and produce even more big suv.

[Jim Richards]

I'm in no mood for government largess to corporations, whether it's the automakers, the financials, the oil industry, or whatever. We need to alter our spend, spend, spend mentality, and we need to do it ASAP.

[berettafan]

Congress was a big player in CREATING a lot of the troubles Detroit now has. Or at a minimum they were big time enablers. Allowing businesses to take 179 depr. on what are essentially luxury vehicles (large SUV's, p/u's, etc) put a LOT of money in detroits pockets that might not have been there otherwise.

In essence this was an interest FREE loan to detroit. Congress deferred the receipt of a LOT of tax dollars (don't know the # but it is massive no doubt) by allowing accelerated depreciation on those ****boxes and Detroit got their money (and more of it) a LOT sooner.

Essentially Congress said to Detroit 'Here's a few billion $$, we'll get it back from the taxpayers over the next few years. '

Good money after bad? This might well be.

[onewhippedpuppy]

Originally Posted by Jim Richards

I'm in no mood for government largess to corporations, whether it's the automakers, the financials, the oil industry, or whatever. We need to alter our spend, spend, spend mentality, and we need to do it ASAP.

Agreed. The rate we're going, the treasury dept is going to run out of paper. They can't keep this up forever.

I think a bailout is effectively encouraging the behavior. They got themselves into this mess, they should get themselves out. Where did the billions they made off of big SUVs and trucks go? Most companies would have used that money to plan ahead, develop high MPG cars, upgrade factories. Because this storm with gas prices has been brewing for a LONG time.

It's funny, the US makers claim that they need to money to "upgrade" their factories for high-MPG cars. When the gas prices went up, I remember reading that Nissan was cutting back Armada production to build more Sentras. On the same production line. I'm sure the US makers will claim they need a new plant.

John also makes a good point. The US makers offer a number of high-MPG gas and diesel cars for Europe. Ford in particular builds a number of class leaders, such as the euro Focus and Mondeo. They actually build better cars for Europe than they do the States. Yet we're supposed to feel sorry for them and subsidize them continuing to build crap?

[Porsche-O-Phile]

How about the automakers bail out the federal government with back interest calculated to 1980 for the bailout of Chrysler 30 years ago? That'd partially offset the latest government handout to all the subprime idiots.

[thrown_hammer]

Only if they are forced to put a bumper sticker on every car they build that says: "We have utterly failed." Then I think it might be okay.

[nut11]

NO! Chrysler's bailout 30 years ago only enabled them and the the other two. There were simply no lessons learned and instead they coasted for 30 years while Toyota and Honda inexorably closed the sales gap by constantly improving product engineering, design and reliability. Guess what? That's how it's done to effectively compete. Amazing. And, who is hiring these Detroit designers and engineers? Must be the Asians and Germans have hired the good ones away. Where is Detroit digging these people up from? Year in and year out pushing out poor design and execution. Seriously, the new Chevy Malibu (Audi A6 copy but that's OK) is the only design I've seen plus the new Caddy CTS coupe that shows buy ability potential on my part. The Buick designs are not contemporary for a younger buyer as much as they pretend to be and the "new" Chrysler chunk designs are visually like a Mad Max desert cruiser. I rented a Crystler Caliber and simply could not believe the lack of fit and finish plus it's a gas gobbler. Ford is starting to do good things and then you see the FLEX. Sorry, I don't get it because it's trying to have its cake and eat it too. GM should downsize and embrace its European divisions and do more copy catting if need be until they turn the corner if that happens. It's simply amazing the "big" three have lasted this long. Oh and last, please, no more retro. God almighty. For the big three: apparently easier said than done..., develop original and fresh designs and please establish and maintain engineering innovation and build quality. Is that too much to ask? It's probably too late, though. Bailout, hell. Enough of my rambling and ranting.

87 blk coupe

[id10t]

Sure, at prime plus 12% or whatever other crazy rate credit cards are at now-a-days.

Throw 'em a bone, and do it at prime plus 6% if they will bring that new 65mpg diesel to American market by the end of 2009...

[RKC]

No. It is an American Tragedy that the Big Three cannot compete and a disaster for the Mid-West....

But, no....

[Rick Lee]

Not no, but hell no!

[Rikao4]

bail out everybody ,
bail this this,bail that..nobody has to worry about failing or turning out scheisse..
cost over run..call 1-800 Bailme out.
losing your shirt because it's a lousy shirt..1-800 Bailme out..
just flush the country and be done with.

NO,NO ,NO

Rika

[nynor]

yeah, why not. 25 billion is a fraction of what they are doing for the mortgage nutters. phhht.

[blk911]

No way. Besides, just think of how notted up the NASCAR pukes will be when they have to run foreign cars on the roundies!

[billyboy]

Nobody should get bailed out. We're watching the beginning of the end of this once great country. I remember as a kid when we were studying the Great Depression, the teachers told us that this could never happen again...surprise. If they bailout anybody, it is just pushing the problem down the road a little further.They're putting more of a load on the backs of our kids. Why have I been struggling for the last 30 years to support my family and make all my payments? I should have just waited for a bail out. If I screw up in my business, who's going to bail me? I have never even dreamed of it.That's the blue collar take on it.

[billyboy]

BTW.700 billion equals about $2295 for every man woman and child in the US, whats a few more billion. Mortgage rescues= pure political pandering.

[Chocaholic]

Unions are the enemy of the US auto industry. BMW, MB, Honda, etc.., all do very well manufacturing in the US in non-union states. Why is that??? Bailouts aren't needed. Remove the giant sucking leach called Unions from GM, Ford and Chrysler.

Problem solved.

[nynor]

Originally Posted by Chocaholic

Unions are the enemy of the US auto industry. BMW, MB, Honda, etc.., all do very well manufacturing in the US in non-union states. Why is that??? Bailouts aren't needed. Remove the giant sucking leach called Unions from GM, Ford and Chrysler.

Problem solved.

unions = enforced mediocrity, both in product and employee effort.

[MattKellett]

I might be wrong, but I'm almost certain that all the Big 3 are profitable in Europe.

So obviously the cars they sell there are in demand. And this is what I believe the problem is...................

ECONOMY!!!!!!!!!

It's how the Japanese marques got a foothold in the US, cheap affordable to run cars. Then they improved quality, but always kept there cars economical

I believe the trouble with the US makers and will be more in the future is they lack of desire to produce efficent cars. And with the price of gas going up and up, they need to really tackle this problem....

I believe driving habits will need to change and the acceptance of diesel will be key. If they can be successul in Europe, there's no reason they can't be successful here. But when they brag about 26mpg as good mileage, they will keep sliding and sliding away.

Matt