Democrats press for car industry rescue

[Hurricane]

Democrats press for car industry rescue
By James Politi in Washington

Published: November 9 2008 13:48 | Last updated: November 9 2008 13:48

Democratic leaders in Congress this weekend called on the Treasury Department to consider assisting the ailing US car industry through the $700bn financial rescue plan enacted last month.

Following meetings with the big three carmakers – Ford, General Motors and Chrysler – on Thursday, Harry Reid, Senate majority leader, and Nancy Pelosi, House speaker, appear increasingly convinced of the need for large-scale government intervention to aid the industry.

In a letter to Hank Paulson, treasury secretary, sent on Saturday, Mr Reid and Ms Pelosi wrote: “We left the meetings convinced that our nation’s automobile industry – the heart of our manufacturing sector – and the jobs of tens of thousands of Americans are at risk”.

Emboldened by big Democratic gains in both the House and the Senate in last Tuesday’s election – as well as the victory of Barack Obama in the presidential race – Mr Reid and Ms Pelosi are asking the Treasury to consider whether carmakers would be eligible to receive assistance through the $700bn bailout plan, which was originally intended only for the financial services industry.

“Were you to determine that the automobile industry is eligible for assistance … we would urge you to impose strong conditions on such assistance in order to protect taxpayers and maximize potential for the industry’s recovery. An automobile industry that is forward-looking and focused on ingenuity, competitiveness, and the creation of green jobs for the future is essential to its long-term viability,” Ms Pelosi and Mr Reid wrote.

As conditions in the US economy have worsened in recent weeks, the Bush administration has been besieged by requests for assistance from a wide range of industries – which it has so far resisted.

Jennifer Zuccarelli, a Treasury spokeswoman, said: “We continue to work on a strategy that most effectively deploys the remaining funds to strengthen the financial system and get lending going on.”

Lawmakers and business groups are pushing for the Bush administration to aid the car industry in three ways. The first would be a faster disbursement of $25bn that were already appropriated for the carmakers to make energy efficient vehicles. The second is allowing the finance arms of the carmakers to participate in the capital purchase programme of the bailout bill. But the most dramatic move that many in Detroit are hoping for is a direct loan, possibly in exchange for equity or warrants.

Full text: http://www.ft.com/cms/s/0/1fc10c0e-a...077b07658.html

NOT to make this political - considering the news that is pushing the stock down so far today, this article is important.

[GMusa]

whether people like it or not.. we have to bail out Detroit. This country cant afford to loose the auto industry.

[mgescuro]

Originally Posted by GMusa

whether people like it or not.. we have to bail out Detroit. This country cant afford to loose the auto industry.

Yes. You're absolutely right.

But how much more of this bailout nonsense must the country endure?

Realistically, Detroit needs to go to Chapter 11 and really, truly organize themselves for the future.

They cannot go on with the tremendous fixed costs and liabilities they have endured for decades.

GM is still built like a company with a 35% market share for crying out loud.

What will a bailout do? It will just buy them some time.

Chapter 11 is really the only cure for Detroit, despite its negative consequences. And that's the scary part about it all. Do we push the automakers into bankruptcy now, so they can reorganize themselves fully, in order to come out of this downturn stronger than ever? Or do we simply buy them enough time and keep them on life support??

Perhaps GM going into Chapter 11 won't be such a bad thing, if the government gave them AIG-like bailout money!!!???? $85 billion in loans, while in bankruptcy court, ensures GM's survival, while the reorganize the divisions properly. A judge will also then be able to make sure that the product strategies and business plans are in place.

But how do they mitigate the negative impact of a chapter 11??
Your guess is as good as mine.

[TheGeneral]

If GM and Ford are losing over 2 billion a month. The goverment would be crazy to give them money. If I worked for GM or Ford or I was a retiree I would be on the band wagon save them ignore the fundamentals.

[fp115]

Originally Posted by mgescuro

Yes. You're absolutely right.

But how much more of this bailout nonsense must the country endure?

Realistically, Detroit needs to go to Chapter 11 and really, truly organize themselves for the future.

They cannot go on with the tremendous fixed costs and liabilities they have endured for decades.

GM is still built like a company with a 35% market share for crying out loud.

What will a bailout do? It will just buy them some time.

Chapter 11 is really the only cure for Detroit, despite its negative consequences. And that's the scary part about it all. Do we push the automakers into bankruptcy now, so they can reorganize themselves fully, in order to come out of this downturn stronger than ever? Or do we simply buy them enough time and keep them on life support??

Perhaps GM going into Chapter 11 won't be such a bad thing, if the government gave them AIG-like bailout money!!!???? $85 billion in loans, while in bankruptcy court, ensures GM's survival, while the reorganize the divisions properly. A judge will also then be able to make sure that the product strategies and business plans are in place.

But how do they mitigate the negative impact of a chapter 11??
Your guess is as good as mine.

Well technically if they can buy 14 months worth of time till the January 2010 contracts, GM will be seeing enough cash to break even.

[PAULSTS1]

Ford made some moves and sold off assets to by them another year. While the stock price sucks, they have a 10 Billion credit line that is still available. GM is in critical condition, they have at the rate of cash burn until maybe mid January then it's quitting time! If the Federal Reserve give them $25 Billion, by summer's end, they will be broke again, this time no money for a bailout, and they will default. This is the worst senario of all, the company will have Crashed and Burned. Also, no matter what is done, the employees won't be saved, the company has too many of them, there will be a massive firing. Also all this trouble has already caused a fear of purchasing a GM product, this will not end until the Company is on permanent solid operation (2011-2014).

[PhishPhood]

Originally Posted by mgescuro

Yes. You're absolutely right.

But how much more of this bailout nonsense must the country endure?

Realistically, Detroit needs to go to Chapter 11 and really, truly organize themselves for the future.

They cannot go on with the tremendous fixed costs and liabilities they have endured for decades.

GM is still built like a company with a 35% market share for crying out loud.

What will a bailout do? It will just buy them some time.

Chapter 11 is really the only cure for Detroit, despite its negative consequences. And that's the scary part about it all. Do we push the automakers into bankruptcy now, so they can reorganize themselves fully, in order to come out of this downturn stronger than ever? Or do we simply buy them enough time and keep them on life support??

Perhaps GM going into Chapter 11 won't be such a bad thing, if the government gave them AIG-like bailout money!!!???? $85 billion in loans, while in bankruptcy court, ensures GM's survival, while the reorganize the divisions properly. A judge will also then be able to make sure that the product strategies and business plans are in place.

But how do they mitigate the negative impact of a chapter 11??
Your guess is as good as mine.

This is a 'damned if you do', 'damned if you don't' conundrum.

If the Feds give GM/F/C $50 Billion in loans then the Treasury better be damnwell certain that none of the three take the money and then go BK the next day. Legally it/we would just be another creditor in line with the rest of the creditors hoping for a nickel on a dollar return. Where would that $50 Billion have disappeared to? Who's pockets?

OTOH if the three do go BK first with the expectation that there will be a $25 - $50 Billion bonanza waiting for them when they come out of BK court in 2-4 yrs ( see Delphi ) then the creditors will refuse to negotiate a settlement.

[Rocket 88]

Originally Posted by PhishPhood

This is a 'damned if you do', 'damned if you don't' conundrum.

If the Feds give GM/F/C $50 Billion in loans then the Treasury better be damnwell certain that none of the three take the money and then go BK the next day. Legally it/we would just be another creditor in line with the rest of the creditors hoping for a nickel on a dollar return. Where would that $50 Billion have disappeared to? Who's pockets?

OTOH if the three do go BK first with the expectation that there will be a $25 - $50 Billion bonanza waiting for them when they come out of BK court in 2-4 yrs ( see Delphi ) then the creditors will refuse to negotiate a settlement.

In the loans to Chrysler in the 80's, the US Government made themselves the #1 creditor who would receive their money back if Chrysler had failed ahead of all and any other creditors. At that time the loan (about 1.5 billion if I remember) was actually backed by enough real assets that the Governments money was quite safe.

I have no idea if this is possible with GM/F/C now or how the Treasury Department would handle a loan/bailout now; but they will not take some safeguards for sure. They won't let the companies just say "chapter 11" and keep it. Nor do I think GM/F/C would want to do that.

The unfortunate part is no one talks about why all three domestic manufacturers have ended up here or how to change the competetive landscape. Without curing the industry, we are dumping money into a big hole.

[TriShield]

A rescue pre-bankruptcy is absolutely wrong and would only prolong the inevitable as well as continue to waste tax money.

GM should be helped after Chapter 11 and after the entire managemnet has been booted.

[fp115]

Originally Posted by PAULSTS1

Ford made some moves and sold off assets to by them another year. While the stock price sucks, they have a 10 Billion credit line that is still available. GM is in critical condition, they have at the rate of cash burn until maybe mid January then it's quitting time! If the Federal Reserve give them $25 Billion, by summer's end, they will be broke again, this time no money for a bailout, and they will default. This is the worst senario of all, the company will have Crashed and Burned. Also, no matter what is done, the employees won't be saved, the company has too many of them, there will be a massive firing. Also all this trouble has already caused a fear of purchasing a GM product, this will not end until the Company is on permanent solid operation (2011-2014).

Buy them another year? Ford has 7 months left.

[megeebee]

Originally Posted by mgescuro

But how much more of this bailout nonsense must the country endure?

.........as much as it takes, I hope.

[KingElvis]

Originally Posted by TriShield

A rescue pre-bankruptcy is absolutely wrong and would only prolong the inevitable as well as continue to waste tax money.

GM should be helped after Chapter 11 and after the entire managemnet has been booted.

Would you buy a car from a bankrupt auto company though?

Instead of a bail out, I would wish for some kind of 'grand bargain' where the health care and legacy costs are taken out of the equation and all the employees paid premiums to a large govt. run health insurance system that would be run 'at cost' sort of like a credit union.

Rather than just throw money on the fire to keep it burning, look for some stuctural changes.

[redfox]

Originally Posted by GMusa

whether people like it or not.. we have to bail out Detroit. This country cant afford to loose the auto industry.

If they can bail out the crooks on wall street and the banking industry they better bail out the big three car makers.

[joemac]

Originally Posted by TriShield

GM should be helped after Chapter 11 and after the entire managemnet has been booted.

As if the replacements that would come on are guaranteed to be better.

[N8s07ss]

Originally Posted by Rocket 88

The unfortunate part is no one talks about why all three domestic manufacturers have ended up here or how to change the competetive landscape. Without curing the industry, we are dumping money into a big hole.

Yea but we live in America, and can only look 2 weeks into the future or the past. That would be silly to understand WHAT caused the mess and HOW to prevent it from happening again.