Friday, December 19, 2008

Big 3 Finally Get Their Pittance


According to the Detroit Free Press: "President George W. Bush this morning announced plans to immediately extend $13.4 billion to struggling Detroit automakers, adding that in normal times it is a step he would be unlikely to take. It signals the end of an anxious week for Detroit’s auto industry, with worries that the Bush administration might not move fast enough to keep General Motors and Chrysler LLC from collapsing, which both said could occur if they didn’t receive a quick infusion of capital. The terms of the loans authorize $4 billion each for GM and Chrysler on Dec. 29 and another $5.4 billion for GM on Jan. 16....In the end, Bush felt he had no choice – he said in his statement this morning that the necessary legal and financial preparations for an orderly bankruptcy were not in place and a disorderly one could have disastrous effects – and authorized the $13.4 billion from the Wall Street cash."

From President Bush's statement this morning: "This is a difficult situation that involves fundamental questions about the proper role of government. On the one hand, government has a responsibility not to undermine the private enterprise system. On the other hand, government has a responsibility to safeguard the broader health and stability of our economy.
Addressing the challenges in the auto industry requires us to balance these two responsibilities. If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation for the automakers. Under ordinary economic circumstances, I would say this is the price that failed companies must pay –- and I would not favor intervening to prevent the automakers from going out of business. But these are not ordinary circumstances. In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action. The question is how we can best give it a chance to succeed. Some argue the wisest path is to allow the auto companies to reorganize through Chapter 11 provisions of our bankruptcy laws -– and provide federal loans to keep them operating while they try to restructure under the supervision of a bankruptcy court. But given the current state of the auto industry and the economy, Chapter 11 is unlikely to work for American automakers at this time. American consumers understand why: If you hear that a car company is suddenly going into bankruptcy, you worry that parts and servicing will not be available, and you question the value of your warranty. And with consumers hesitant to buy new cars from struggling automakers, it would be more difficult for auto companies to recover.

The restructuring will be painful for the companies that take the loans--GM and Chrysler for now--and for the UAW. According to The Hill: "Bush said conditions for the loans were similar to those considered by Congress, where a bailout package was approved by the House last week but was blocked in the Senate by Republicans. The president stated that companies accepting the loans would have three months to offer plans for restructuring themselves into viable companies. Those that fail will have to repay the loans by March 31, he said. Bush said the timeframe would also give companies time to draw up orderly plans for a Chapter 11 bankruptcy process. He said the credit crunch troubling the wider economy, which has led to the weakest auto sales since World War II, meant auto companies had not had time to prepare for an orderly bankruptcy. Last week’s package collapsed in the Senate over GOP demands that the UAW agree to a date certain in 2009 when U.S. worker wages, benefits and pensions would be leveled with those paid by foreign auto companies producing in the U.S. The UAW said it could agree to such a date in 2011, when its current contract expires....On Friday, Bush said workers would have to agree to wages competitive with foreign companies, but he did not mention any specific date."

I've said before--why are the Big 3 American automakers being held to a different standard than the financial companies? Over the last several months, "the Bush Administration returned $158 billion to taxpayers in the form of rebates to try and stimulate consumer spending. It also provided a $29 billion loan so that JP Morgan Chase would rescue Bear Stearns; bailed out Fannie Mae and Freddie Mac the mortgage giants, AIG the world's biggest insurer; rescued Citigroup and earmarked $700 billion of taxpayer money to protect Wall Street from collapse." (For a nice commentary on where the $700 billion TARP money is going, see this article in Salon). AIG alone has gotten $150 billion, no strings attached even as their executives are cashing in. I just don't get it.


DJ said...

I agree with you - it seems like the financial giants are getting the loans with no strings attached, but the automakers are having to spin gold from straw to get a fraction of what Wall St. is getting. Is this a case of where the lawmakers have their money? One wonders...

DC said...

It blows me away & I cannot believe the hypocrisy. I am disappointed the media has not banged the drum louder on the issue. I'd love to see some determined reporter out there follow the money trail & see whose pockets the wall Street crowd is lining...

DJ said...

As I find we are often a nation of firefighters - we put out fires after they spring up, but don't put in sprinklers to prevent them. Someone will check up on the story once it is all done and over...

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