$50 Billion for the Detroit Three: Yea or Nay?
The Detroit News reports today (8-27) that long-time US Senator Carl Levin (D - MI) has gone on-record at the Democratic National Convention in Denver, telling reporters there he is working to win passage of a roughly $50 billion package of government-issued loans to assist the Detroit Three automakers. That's right, Fifty Billion Dollars. As Illinois Senator Everett Dirksen was purported to have said, "A billion here and a billion there ... Pretty soon you're talking about some serious money."
If the funds are government-issued loans, the Detroit Three would be able to borrow the money at the lowest possible interest rates, something their sub-investment grade credit standings would not allow in the open market. These direct loans would be payable over 20 years and the government could opt to defer all payments on the loans for five years. The favorable interest rates will save them $100 million on every $1 billion they borrow.
But the day after Levin's talk with reporters, GM's executive in charge of North American product, Bob Lutz, said his company would welcome "loan guarantees," similar to the ones which saved Chrysler in 1979.
I spoke with Jesse Snyder, a long-time reporter and Online Community Editor for Crain's Automotive News weekly, and he told me that there's "a fine haze over the entire question (of whether the funds, if any, would be direct loans or loan guarantees). Levin has proposed $50 billion in direct loans from the government. I think of it as the opening bid."
These days, that's an offer they literally can't refuse. The proposal has been backed by Barack Obama. It would cost taxpayers $7.5 billion to guarantee the loans.
The pain of high gas and diesel prices is most acute at the Detroit Three, but even mighty Toyota is affected. The soaring cost of steel has that company considering raising prices in Japan without a model makeover for the first time in three decades, the Japanese automaker said Wednesday. Speculation has been that Toyota will be forced to announce higher prices in Japan - a move even Toyota acknowledges could be critically damaging for an already sluggish Japanese market.
Nissan Chief Executive Carlos Ghosn has hinted he is waiting for its bigger rival, Toyota, to
take the lead to make it easier for others to follow suit.
Jack Hoogendyk, a Michigan state lawmaker from Kalamazoo, and Levin's Republican
competition for his senate seat, supports a program authorized in last year's energy bill which
OK'd up to $25 billion in loans to the automakers over five years -- a program that would cost
the public $3.75 billion. But Congress has yet to provide any money to actually fund the
program and the White House hasn't said if it would back the effort.
These loans differ from the government help given Chrysler in 1979, when the company seemed destined for bankruptcy. What saved Chrysler was not an infusion of government money, as Levin is now working for, but $1.2 billion in loan guarantees provided by the federal government - so successful was that timely injection of cash that the company paid all their loans back, and early. Because of that success, the program to save Chrysler didn't cost taxpayers a penny. That kind of luxury doesn't exist for the Detroit Three today.
Should Chrysler, or two of the car-makers or even all three go bust, then, this time, the American people will pay the price, both literally and figuratively.
The real and extended damage to the nation's, and the world's, overall economy will come from the closing of thousands of small, medium and large supplier companies in the US, car-maker suppliers which employ hundreds of thousands of American workers, many of them union.
It's several months until a new team comes on-board in the White House (with hope that the post of Chief of Staff to the President will not filled by the former chief lobbyist for General Motors, like Andrew Card was for Bush), but the problems of General Motors, Ford and now-privately-held Chrysler can't wait even that long.
Recently, all of the Detroit Three have had to go to extreme lengths to raise cash.
Ford sold their sizeable interests in both Range Rover and Jaguar to India's Tata, and it's possible that at least some of Ford's more-than-30% interest in Mazda might also be up for grabs for the cash it could generate for FoMoCo. Another of Ford's European holdings, Volvo, is doing fairly well, but even if they were selling all the cars Volvo could make at their string of dealerships worldwide, the value of all that would be only a fraction of the kind of money Ford needs to survive.
Chrysler is now shopping-around their Dodge Viper "brand," including the car itself and all its ancillary products, such as spare parts, machining and tools, body panels, engines and engine blocks and the brand's entire heritage and image. So we might see future versions of the Viper made by one or even several different companies, much as the Studebaker Avanti has been regularly resurrected by more than a few companies, many of which failed (as of 2007, Avanti Motor Corporation was offering coupe and convertible versions of the car, built at a plant in Cancun, Mexico).
Recently, GM started quietly taking bids on their Hummer brand. AM General of Mishawaka, IN, (love that city's name, by the way - it even sounds tough!) still makes HumVee vehicles for the US military and is an off-shoot of the old car-maker Studebaker and one of the last vestiges of American Motors. They've made over 200,000 HumVees for the US military and for clients in over 50 other countries. HumVee and even parts for HumVees can't be sold to any entity without US government approval. HumVee, incidentally, stands for High Mobility Multipurpose Wheeled Vehicle.
In 1999, AM General and GM agreed to jointly pursue product, marketing and distribution opportunities for Hummer. GM acquired the exclusive ownership of the Hummer brand name worldwide and the original civilian Hummer was renamed the Hummer H1. Since 2002, AM General has produced the Hummer H2 for GM; the new Hummer H3 is built at GM's gigantic Shreveport, LA plant alongside the Chevrolet Colorado and GMC Canyon pickups (they share the GMT-355 platform). GM has responsibility for marketing and distributing all Hummers.
And now all that is for sale.
How do you feel about loaning money directly from the federal government to these three car-makers, rather than loan guarantees, as was done with, and which saved, Chrysler in 1979?
Is there another way to keep these companies open and their people working instead of long-term government loans? A bond sale? GM stock is under $11 a share and Ford is less than $5. Should Chrysler's owner, Cerberus, try a new stock offering, an IPO, and become a publicly-owned company once again?
All ideas and brain-storms are more than welcome. It's clear, as it's been for almost the past 30 years, that the professionals who run these places haven't been able to manage very well on their own.
Follow Steve Parker on Twitter: www.twitter.com/autojourno
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Sure, they should get a bail out. The American auto industry has for years excelled in building the high quality, high resale products that consumers have been adandoning their Hondas and Toyotas for. They have been constant advocates for higher fuel efficiency standards, have stood up for the American worker, and have answered the outsourcin
With the government's huge surplus, there's plenty to go around. Will $25B really suffice? Can we toss in a couple billion more to develop the next generation of bench seats, plastiwood interiors, or body on frame V8 SUV's?
If we've learned anything over the last week, it's that having a valid business model isn't a prerequisite for doing business in America any longer. The government will be more than happy to shove a few thousand dollars into the glovebox of that oxymoronic 5300 pound Chevy Tahoe that GM thought was such a great alternative to a decent economy car. It's an election year, and that means any incompetent CEO with a lobbyist can suck a few billion out of the taxpayers.
Any Loans to US Auto manufacturers should also require that Chevron release the patent on the Public Subsidized NiMH battery for electric cars: ( http://www
Volswagen already has cars on the road in Europe that get 70-80 MPG's and Mini-Cooper also has a diesel model in Europe which does that well. Both would meet pollution standards and in view of that, why would such low standards on mileage be acceptable?
While all of this corporate socialism is rather unseemly, Mr. Mullaly raises good points. He seems to be the only one of the big 3 Detroit automakers that seems to have a clue. I doubt Chrysler will even exist in its current for for much longer.
I'd say they get em but put contract terms into the deal that all auto execs get a salary of $1 and no bonus compensation. That they will be required to up their CAFE standards and not use any money to make trucks and suvs, and essentially build a decent car with good fuel economy that the country wants. (BTW remember they must have decently roomy back seats too)
Is this asking too much, I think not.
(continued from below)
GM execs would RATHER CLOSE FACTORIES, lose THOUSANDS of American jobs, and go hat-in-hand to Uncle Sam for bailouts, than give American auto consumers what they want, a vehicle with proven 120 mile range, 80 mph top speed, at least THREE TIMES the miles-per-dollar energy cost (really, over 7 times), and service life of over 6 years per battery set.
A friend of mine is driving a 2002 RAV4-EV every day to work, on a 100 mile roundtrip commute, and his teenagers love the spooky--quiet little SUV.
It is simply AMAZING how corporate America's message of "WE CAN'T!" transition to alternative energy, is THE mantra in America these days - even with a SIX YEAR OLD _PRODUCTION_ all-electric vehicle still on the road to show them as liars!
Thanks, Steve. NOW we see the root of the INCREDIBLE ARROGANCE and INCOMPETENCE of the CEOs, chairmen, and execs who run the Big Three... the ol' "What's Good for GM" (Ford, Chrysler), "is good for America" SENSE OF ENTITLEMENT.
Wiki explains how GM _SOLD_ its patents for superior new battery technology to... Texaco, bought out by Chevron, which promptly SUED Toyota & Panasonic for $30 million to STOP production of the high-tech batteries which powered the ALL-ELECTRIC Toyota RAV4-EV small SUV,
http://en.
Not only no, but HELL NO!
1 Roger Smith, of Roger & Me fame, squandered tens of billions of dollars on pipe dreams with little to show for it during his tenure at GM. Other executives at the flat earth society that is the US Auto industry have done the same, all the while pocketing massive paychecks and bonuses.
2 These are the same companies that have exported a huge chunk of their job base to Mexico and elsewhere and destroyed their in-house parts subsidiaries at the price of over one hundred thousand US jobs. This despite the fact that the American worker is one of the most productive in the world.
3 It's time these 'capitalists' felt the consequences of their mismanagement. Let them tank.
Nay, to any federal money.
These are companies who have, for their entire history, been bastions of libertarian pixie dust PR where they purport to be all about the joys of unrestrained free markets. Let them sink or swim.
A better use of that money would be for alternative energy research, tax credits for home owners to make their homes more energy efficient, and tax credits for electric car research and manufacturing. If ford, gm, or that other company want in then let them COMPETE.
NO MONEY !!!!!!!!
SOON ALL THE AUTO RETIREES WILL BE ON MEICARE OR EVEN MEDICAID WHEN THEIR RETIREMENT FUNDS FAIL AND THEY HAVE TO LIVE OFF SOCIAL SECURITY ONLY.
THE AUTO MAKERS WILL BE DUMPING THEIR RETIRTEMENT FUNDS ON THE U.S. GOVERNMENT !!!!!!!!!
If rewarding success breeds excellence, what does bailing out failure breed?
:-)
Republicans!
and presidents named bush
As on old school gearhead it will be a sad day to lose any or all of the Big 3 but the decisions they have made over the past 3 decades have not been good ones. I am guilty of being swayed by a big V8 in a truck when gas was $1.30 a gallon. And many of us laughed at people that were driving little economy cars getting 30+ mpg. Now it would seem that this was not such a stupid thing.
In the past 30 years Big Oil and the Auto Industry have managed to keep Fuel Economy numbers as low as possible, by crying to congress that economical cars don’t sell and that higher standards would cause them to lose money. Well this has worked out as well as Trickle Down Economics. Just drive past the used car lots and notice all of the full size trucks and SUVs they have in stock.
Perhaps Big Oil should bail out their buddies in the automotive industry? They have money to spare. Or maybe that $50 Billion could go to turning some of the bike trails back into railroads and to support real light rail? That would provide jobs wouldn’t it?
I say NAY!!
Let one or more of the detroit car maker go bankrupt (No reorganization please, straight to liquidation!!).
the other carmakers would gladly pick up the pieces. the auto industry is suffering from too many players.
we need a few chapter 7 in auto and airline industry!!
If they need taxpayer money to survive, then that has to come with a clean sweep of the executive ranks. New Chairman, BOD, new CEO, CFO, the works.
Why should we reward the guys who got them into this mess, and even more important, how can we trust these guys to lead these companies in a new direction?
Clearly hundreds of thousands of direct automotive and the indirect service, supply, support jobs are at stake, particularly here in the industrial midwest where globalization and supply side economics have been none too kind. Assistance for the automakers will have a clear and visible impact on mainstreet, unlike Wall Street bailouts. Automakers also have hard assets in facilities, equipment, patents and trademarks so the risk is less for the taxpayers than the worthless paper assets of Wall street.
With that said, if the taxpayers are going to help detroit it is not unreasonable to ask for something in return, such as requiring most of the money to be invested in domestic R&D for more fuel efficiency and alternative energies, domestic facilities and capital equipment, and should not be used to further offshore jobs or give senior management big bonuses.
If congress can spare a dime for Wall Street , then clearly they can spend a nickel on Detroit
Well, it's only been 35 years since the first energy crisis. You really can't expect American auto executives to be able to plan for these things. Jeez, just because their cars are typical 1970s gas guzzlers doesn't mean we shouldn't give them 50 billion in taxpayer subsidized loans until they can figure this out. What do you expect for a few hundred million in pay, bonuses and perks, miracles?
Yes all around the world we began to conserve oil even Detriot responded for a while with the Chevettes and Focus.
But Conservation worked so well they could not resist making huge monster SUV and SHOW TRUCKS that seldom hauled anythin heavier than a 12 pack and groceries.
Other people scarficed so they could jump in and take advantage and destory all the efforts of millions who chose to be engery responsible. Thye made Billions for a few years and now they are going under well good bye you selfish self centered a$$ holes.
Thats all well and good - but what about the hundreds of thousands of workers here in the industrial midwest in all the direct auto jobs, and indirect service, supply and support jobs that depend on the auto industry?
Massive failure of big auto would literally destroy the midwestern economy and send shock waves thru the whole country- one already seriously damaged by globalization and its cousin supply side "voodoo" economics
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