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Do You Favor A Government Loan To The Detroit 3?

This is a timely topic.

The details will be worked out IF the proposal moves forward, but the talk is of a loan, with interest, to be repaid, not a bail out in the form of a conservatorship, a la Fannie Mae and Freddie Mac. Unlike with the giant mortgage institutions, the U.S. government will not take an ownership stake in the domestic auto companies, but lend them money, perhaps $50 billion, at favorable interest rates.

This discussion provides an opportunity to share your thoughts on this important matter.
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Comments

  • bumpybumpy Posts: 4,435
    No. "Give me money or I'll burn your house down" isn't a loan.
  • nippononlynippononly SF Bay AreaPosts: 12,669
    this won't be a repeat of Chrysler in the 80s. They will suck down the money and STILL go under in five years, or maybe ten in the case of Ford.

    Now GM maybe has a viable business plan for their long-term future, so maybe they can have a taxpayer loan. But there is a lot more pain in their future too, so I'm not 100% ready to give them the money either.

    Of course, in a market where the government feels duty bound to blow taxpayer money all over the place, taking over Freddie and Fannie, and before that fixing the Bear Stearns mess, I don't see why the automakers should be that different. On that basis, they should be given the money rather than loaned it. But I think the Freddie, Fannie, and Bear Stearns things were all misguided and I don't support it.

    Can you imagine if the government took over GM and ran it as the national car company of the U.S.? :-P

    2013 Civic SI, 2009 Outback Sport 5-spd (stick)

  • gagricegagrice San DiegoPosts: 28,692
    The Big 3 have no plan. It will cost us billions just to insure the loans due to the shaky nature of the companies. Let em go broke. Or just move their operations all to Canada and Mexico. They can shut down here and keep their money making businesses in the EU and China. That is the emerging market. Maybe China or the Saudis would like to bail them out. We already own too many homes we cannot sell. We don't need millions of cars and trucks rusting on the lots.
  • nortsr1nortsr1 Posts: 1,060
    loan them the $$$$. Hell, we "GIVE" billions to foreign countries at the drop of a hat....NOT LOAN IT...."GIVE" it away. The least we can do is MAKE THE LOAN AND LET THEM TRY TO SURVIVE.
    I read the interest rate would probably be 5% or 6% as compared to a much higher rate if they could borrow elsewher (as their credit rateing is probably down the tank). There are hundreds of thousands of jobs at stake with the trickle down affect if they went under. Suppliers, truckers, small businesses.(God only knows how many businesses and people it would affect.
    It is my understanding that some of the foreign countries susidize their auto manufacturers. (I don't know for certain...but have read such).
    What the hell do we have to lose. It's only money that the govt. prints on a daily basis. I certainly believ GM and Ford are certainly TRYING to make things profitable again. (Chrysler I don't really know, since it went private).
  • We seem to be writing a lot of checks these days.
  • nippononlynippononly SF Bay AreaPosts: 12,669
    Yeah, but they have been TRYING to make things profitable for a long time, with no success. And in at least 2 cases out of 3, I don't believe they even understand what it takes to be successful in the auto industry in 2008. Or have any clue as to what consumers want, and how to make profitable product for the foreseeable future (say, 20 years out).

    GM is the exception, although I am as I said before unconvinced they can make it out of the immense hole they have dug, even with lots of financial help.

    As for the trickle down problem, 3/4 of the domestic suppliers are at bankruptcy's door as a result of the "Big 3" meltdown already. We will lose many, including some of the biggest ones, regardless of whether or not we bail out the automakers.

    2013 Civic SI, 2009 Outback Sport 5-spd (stick)

  • andys120andys120 Loudon NHPosts: 16,403
    I would like to see some of the Big Three survive (let's face it, ChryCo is a goner) but IMO there would have to be certain conditions,

    -The taxpayers would have first claim on any assets in case of material default or insolvency.

    -Executive officer salaries must be limited to the highest grade Federal GS Salaries (George Will's idea).

    -Production of products intended for sale in North America must be limited to NAFTA signatories and for every vehicle imported from Canada or Mexico there must be a corresponding export of US made units to other countries.
  • I would not favor a loan prior to a plan, from each of the big 3, that shows a reasonable likelihood of resulting in return to profitability in a reasonable timespan. I waver on this, because collapse would be horrible for the economy, but a short-term solution would only prolong the years til collapse, not eliminate the likelihood of collapse.

    And who's to say that the economy would be in a BETTER position to handle it at that time?

    Need help navigating? kirstie_h@edmunds.com - or send a private message by clicking on my name.

  • dtownfbdtownfb Posts: 2,915
    I would need more than a plan to profitability. Ford has one that see them profitable by 2009 and that is not going to happen. And Chrysler (can we call them Nissan yet) doesn't have prayer. What happens if they get the loan and still go bankrupt? Does the government take over control of GM or Ford?

    Considering we are a capitalistic and free market society, i have a hard time agreeing to bail out a company that is in trouble because of their own poor management and lack of vision. At some point someone has to make the hard decision to let one of these giants fall.
  • I more meant a plan that could be analyzed by multiple outside sources, based on current production, sales, new product, cost, etc., trends that shows a realistic plan to profitability.

    I have the same problem, but I also fear what a massive loss of such jobs would do to the economy. It's a balance - lesser of two evils.

    I disagreed with bail out plans for certain companies - say, Amtrak - because they weren't really doing what could improve their chances. Apart from up the East Coast, you can't GET anywhere on Amtrak. In St. Louis, I have to go to Chicago or New Orleans on Amtrak before going ANYWHERE else. Expect consumers to start using your service if routes like that don't change? Not a chance.

    Same with automotive corporations. You have to show substantial and significant change that is LIKELY to result in financial improvement before you get handouts of any kind. Loans are great, but if the company goes under and can't repay, it becomes a gift.

    Need help navigating? kirstie_h@edmunds.com - or send a private message by clicking on my name.

  • grbeckgrbeck Posts: 2,361
    ...the current proposal is that it is much more open-ended than the Chrysler loan guarantees. It also imposes far fewer conditions on the recipients.

    GM has cut costs and introduced some new models, but it really hasn't done much to revamp the corporate culture that led to this mess. I see no reduction in badge engineering - indeed, after Bob Lutz said that badge engineering was a dumb idea, GM went ahead and introduced the Pontiac G5. It brought over the Pontiac G8 and Saturn Astra with great fanfare, and then has basically abandoned them in the marketplace. When GM introduced the Cobalt, it said that this car was supposed to end the long line of mediocre-to-crappy GM small cars, but it wasn't even as good as a Ford Focus, and now GM is saying that the upcoming Cruze will be the first real quality GM small car, which means that GM was apparently fibbing about the Cobalt.

    All of which sounds suspiciously like the same old GM.

    And why does GM need FOUR crossovers - Acadia, Enclave, Outlook and Traverse - that compete with each other as much as Honda, Toyota, Nissan and Ford?

    The Volt is intriguing, but the idea that a $35,000+ car (which may still lose money at that price) with a new and untested drivetrain is going to "save" GM is a risky proposition. Note that Toyota initially lost money on the Prius, and even today its main sources of sales and income are the thoroughly conventional Corolla, Camry, RAV4 and Sienna. The Prius is more valuable as a testbed of new technology and a PR exercise than as a profit-making venture. And right now, what GM needs are profits.

    On the operational side, GM's cash burn is getting quite serious, and is worse than Ford's. GM's launched its big guns with the Malibu, GMT-900 and new crossover programs, and it is still losing money and declining in sales. A recent Automotive News article listing new models from each manufacturer showed that GM's cupboard is dangerously bare, which suggests some serious cash problems.

    Reading the statements of Bob Lutz and Rick Wagoner, I still get this feeling that GM still believes it is "too big to fail," and that buyers are still waiting breathlessly for each new Chevrolet, Buick or Cadillac. I don't think it has sunk in with GM's top management as to how much the passenger-car market has passed GM by, and how its passenger cars, with few exceptions, are regarded as "also rans" by a large portion of the public.

    Ford, under Mullaly, has done more to revamp its corporate culture than GM has. Ford also has fewer models and divisions than GM, and thus it is more likely to be greatly assisted by a single "hit" than GM is. The Fiesta looks to be the right car at the right time, although I doubt that it will bring in enough money to replace all of those lost F-150, Explorer and Expedition sales. Ford quality has also improved consistently (Ford is better than either GM or Chrysler in this regard), and Ford has done a pretty good job of using Mazda and Volvo technology to improve bread-and-butter Fords.

    But Ford needs to bring some excitement to the table with its products. The Lincoln MKS, for example, isn't nearly enough to revive the Lincoln brand. Relying on V-8 Mustangs to add excitement to the lineup when gasoline is going for over $3.50 a gallon isn't a smart strategy. The Flex is a great vehicle that debuted about three years too late. And I doubt that the F-series will ever sell 900,000 units in a year again, given the collapse of the housing market and the tightening of credit standards (for both houses and vehicles).

    Bottom line is that I think Ford is better bet for survival than GM, and would thus likely benefit more from taxpayer largesse. Of course, it only made those changes because of the threat of bankruptcy in the first place. But both have serious challenges ahead, and I wonder if even federal help will really work, or result in the creation of American Leyland.
  • hpmctorquehpmctorque Posts: 4,120
    As always, you gave a good analysis, grbeck. How are we to interpret the fact that you didn't mention Chrysler?
  • grbeckgrbeck Posts: 2,361
    Thank you, hpmctorque. Chrysler is somewhat of a mystery right now. I don't know WHAT strategy Cereberus is pursuing with Chrysler. I haven't even heard much about new models beyond the upcoming 2009 Ram and a small car based on the Nissan Versa.
  • nippononlynippononly SF Bay AreaPosts: 12,669
    I think it was very appropriate that grbeck left them out, and indeed, even if the other two get the loans, there is NO WAY Chrysler should also be a recipient. That company has no future.

    As for the others, someone else posed the question of what the taxpayers could claim as collateral in case of default. Do they have anything left to mortgage? I don't think so. GM is having trouble coming up with the first billion dollars in asset sales this year even as they desperately need them, and last I heard the big news at Ford was that it had mortgaged every last thing including its headquarters to the banks in the LAST big round of borrowing it did.

    I think the money would be much better spent on programs to mitigate the economic damage that everyone says will occur when the Bifg 2.5 inevitably fail. Retraining programs, new small business incentive programs, what have you.

    These will need to be in place in the next couple of years for Chrysler fallout and in the next five to ten for Ford fallout. GM, well, we will see if they make it, but they probably won't implode sooner than five years.

    2013 Civic SI, 2009 Outback Sport 5-spd (stick)

  • Stever@EdmundsStever@Edmunds YooperlandPosts: 39,047
    Chrysler to introduce 7 major models in 2010. (Yahoo).

    Jim Press remarks in that squib that Chrysler would benefit from the loan guarantees.

    Cerberus is still a mystery to me too though.
  • nippononlynippononly SF Bay AreaPosts: 12,669
    Nice....they provide absolutely no specifics. 2 of the 7 could be the new hybrid and diesel trims of the next-gen Ram, for instance, which I would not consider to be "new models" but rather pigs with slightly better lipstick. As such, they will do very little for the bottom line.

    Chrysler should be excluded from this loan program.

    2013 Civic SI, 2009 Outback Sport 5-spd (stick)

  • Take out your crystal balls.

    What would it really mean if one or more of these guys actually went into bankruptcy? Just how real a possibility is bankruptcy for any of them?
  • hpmctorquehpmctorque Posts: 4,120
    Whether to attempt to save the U.S. auto makers has so many issues associated with it, that no matter what's done or isn't done, there will be negative implications. One would hope that there would be some positive ones too, but some negative consequences and side effects are a virtual certainty.

    Although the issues are totally different, I see parallels with the Iraq War, especially before the surge. One could argue that Detroit should have anticipated the strong demand for reliable and fuel efficient cars years ago, while they were still strong, just as one could argue, especially in hindsight, that the Iraq War was a tragic mistake. However, the more difficult question may not be whether better judgment should have been exercised, but what's the best course of action now? You can blame the bad decisions on myopia, greed, poor judgment, faulty research, a confluence of uncontrollable events, etc, but analysis of the past is of little help in deciding whether Detroit should be thrown a life line now. The question of the moment is whether it's preferable to let one or more major domestic auto maker declare Chapter 11, or risk the tax payers' money on loans, in the hope that the companies will become profitable, if only they are given more time.

    One thing I would favor would be a temporary relaxation of safety standards, and emissions standards on diesels, to enable Ford and GM to import some European spec models. Chrysler could try to strike deals to import some Chrysler badged Fiats, Renault/Nissans, VWs, or whatever. After all, we're not talking about third world standards, but standards that, while not the same as ours, are reasonably close. I mention this because it may help Detroit become competitive and profitable sooner, and a temporary relaxation of standards may reduce the need for loans, or reduce the size of the loan requirement. As long as extraordinary measures are being considered, the importation of European spec models should also be considered.

    Another move I would favor would be to equalize the taxes on diesel fuel and gasoline, or, at least, to make them more equal. This would put diesel cars on a more equal footing with gasoline powered ones, and allow diesels to compete more equitably with hybrids and electric vehicles. I am referring primarily to the federal taxes on gasoline and diesel fuel here, because I don't favor tampering with the right of state and local governments to make their own tax decisions. Perhaps state and local governments should be encouraged to consider a similar move, if only temporarily, but I don't think they should be forced to.
  • dtownfbdtownfb Posts: 2,915
    I more meant a plan that could be analyzed by multiple outside sources, based on current production, sales, new product, cost, etc., trends that shows a realistic plan to profitability.

    Understood what you meant but this won't happen. To get a plan like this approved, GM will have to literally break down their current business model. With Lutz there, i don't see this happening. He comes off as arrogant and I can't see him allowing an outside resource telling him how to run a company. (yes I know Wagoner is the CEO but Lutz has a ton of power).

    I have the same problem, but I also fear what a massive loss of such jobs would do to the economy. It's a balance - lesser of two evils.

    It would cause a problem but at some point we have to say enough is enough. I understand the bailout of Fannie and Freddie since it affects half of all homeowners with a mortgage. I don't see saving a company who has the vision of Mr. Magoo. In the late 90s GM stopped developing the electric car (The Volt) because it would dig into their profits an they saw no need to waste money when they literally made about $9000 on every Silverado.. GM made a conscious decision to go the route of pickups and SUVs. Same with Ford. They put out mediocre cars in the NA market because they knew they could rely on people "buying American" and fleet and rental sales. No one has ever explained to me why Ford's best cars are over in Europe and not here in the US. Why did GM feel the need to bring the Astra over from Europe? Why does Chrysler need to partner with Nissan to build a competitive small car?

    The American taxpayers are in no position to bail out these companies. If we do bail them out, does that mean I am a shareholder and can sit on the design meetings? :P

    BTW, I never understood the Amtrak situation. i guess I am spoiled here on the east coast.
  • Absolutely! The executives at the domestic auto companies need the $50 billion for their "golden parachutes."
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