Congress To ‘Bailout’ U.S. Automakers?

Posted In: 2008 Election, Auto Sector, Bailout, Congress, Political Parties, Politicians, President Bush

Looks like American automakers are next in line for a big payday. CNN Money’s Chris Isidore wrote this afternoon:

Plunging auto sales, high gas prices and election year politics could help convince Congress to approve a $50 billion loan package to embattled U.S. automakers that Detroit’s Big Three claim is key to their future success.

On Wednesday, General Motors, Ford Motor and Chrysler LLC reported monthly sales declines of at least 20% from a year ago, as American car buyers continued to turn away from SUVs and pickups and towards more fuel efficient car models.

The Big Three are now in the process of closing truck assembly lines and rushing to catch up with hybrid and other fuel efficient offerings from Toyota Motor and Honda Motor.

But with GM and Ford saddled with junk bond debt ratings and privately-held Chrysler with the thinnest capital cushion of the three, Detroit is caught in a credit squeeze that will make such investment difficult if not impossible…

Thus, the automakers have deployed what one industry official describes as a “surge” of lobbyists and executives at both the Democratic and Republican Party’s political conventions. The Big Three’s hope is that if they can win speedy passage of the loan package, they can move more quickly to retool their plants to produce more smaller cars.

The $50 billion loan package, first proposed by the auto industry last month, has won the support of presidential candidates Barack Obama and John McCain as their campaigns eye key votes in Michigan and Ohio.

The CNN Money senior writer spoke to David Cole, chairman of the Center for Automotive Research, about the prospect of low-interest federal loans and noted:

Cole and the automakers think winning the support for the loans will be easier now that Congress has moved to help mortgage finance giants Fannie Mae and Freddie Mac as well as home owners who borrowed more than they could afford on their mortgages.

Steven Pearlstein of the Washington Post also thinks the massive loan package, or “bailout,” as he refers to it, will go through. Pearlstein wrote yesterday:

So it should be no surprise that when Congress returns next week, the companies and their unions will put on a full-court press to win approval for $50 billion in federal loans to be used to re-engineer and retool their plants for a new generation of energy-efficient vehicles.

With the auto-dependent states of Michigan, Ohio and Indiana up for grabs in November, the Big Three hope to use the political calendar to their full advantage. They’ve already won the backing of both of the presidential candidates, along with House Speaker Nancy Pelosi, who promises quick action this fall. And while the White House has indicated its reluctance to involve the government in the rescue of yet another industry, it may have a hard time explaining why the automakers are any less deserving of a “bailout” than Wall Street investment banks or Fannie Mae and Freddie Mac.

The question now is, who’s next?

Someone’s knockin’ at the door
somebody’s ringin’ the bell
Someone’s knockin’ at the door
Somebody’s ringin’ the bell
Do me a favor open the door and let ‘em in.

-Wings, “Let ‘Em In” (1976)

Sources:

“Big Three bailout may be around corner”
Chris Isidore
CNN Money, September 4, 2008

“The Road to a Bailout They Don’t Deserve”
Steven Pearlstein
Washington Post, September 3, 2008

Sphere: Related Content