Thursday, December 04, 2008

Automakers Ask for $34 billion in Aid

As I am sure you remember two weeks ago the CEOs from the Big Three automakers -- General Motors, Ford, and Chrysler -- all came to Washington, D.C. to ask Congress for a $25 billion loan to help their struggling companies stay afloat and avoid a complete collapse of the U.S. auto industry.

As you also probably remember the whole thing turned into a fiasco. First there was the revelation that each of the companies' chief executives traveled to the nation's capital on private jets. Second, this request came just a month after Congress approved $25 billion in low-interest loans for the automobile manufacturers and suppliers to retool their plants to build more fuel-efficient vehicles.

Now the Big Three executives did learn at least one thing as they made the trip from Detroit in new-model hybrid autos made by their respective companies.

Still the auto industry representatives met with fresh skepticism on the Hill.

Chrysler is the weakest of the Big Three, CEO Bob Nardelli promised that his company, who was a recipient of a previous government-subsidized rescue loan in the 1970s that it repaid fully, would repay taxpayers by 2012. The Chrysler plan says it would devote itself to manufacturing “fuel-efficient cars and trucks that people want to buy.”

GM’s survival plan envisions an administration-led restructuring overseen by a government oversight board.

Ford seems to be in the strongest position right now, and it only requested a $9 billion “standby line of credit” in case one of its Detroit competitors fails.

United Auto Workers union president Ron Gettelfinger told the committee, “We are prepared to do our part.” But he also said workers for the auto companies shouldn’t have to make disproportionate sacrifices.

Democrats have urged the administration to tap into an already enacted $700 billion financial bailout program to help the auto industry. Bush and the Republicans have resisted and used this opportunity to bash unions, and are placing blame for the plight of the Big 3 on the blue-collar workers. Sen. Jim DeMint (R-SC) claimed that "some auto manufacturers are struggling because of a bad business structure with high unionized labor costs," while Sen. Jon Kyl (R-AZ) said on Sunday that the auto industry has "been sick" for years because of a "bad business model" with "contracts negotiated with the United Auto Workers that impose huge costs."

This of course ignores the fact that unions have repeatedly made concessions to auto companies over recent years. The trouble with the Big 3 is that they have had really bad executive leadership for years.

As to the bailout, I fall in line with the side that there should be a bailout. To be honest I think there should be a radical buyout that takes over the companies, builds up their assets, and then sells off the pieces. I think GM is too big, and so it is too slow to meet the changing markets. I think factories should be purchased, converted to facilities that can build a new economy, and then sold off. Does it not make sense to take a car factory that is failing, and building cars that are not needed, and rebuild the factory to produce wind turbines, or bullet trains, or solar collectors?

The bailout remains unpopular with the public, but I do think a lot of that is short sighted by some, and a real worry that billions will be given to the auto industry, and then six months later they will be asking for a bailout again. Therefore oversight of the auto bailout must be much stronger than the bank bailout, where billions is being wasted. Here is an opportunity to put the money into something real, something solid, and something that makes future money for the economy.

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