Do You Favor A Government Loan To The Detroit 3?

hpmctorque

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.

bumpy

No. "Give me money or I'll burn your house down" isn't a loan.

nippononly

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

gagrice

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.

nortsr1

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).

mattandi

We seem to be writing a lot of checks these days.

nippononly

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.

andys120

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.

Kirstie_H

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?

dtownfb

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.

Kirstie_H

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.

grbeck

...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.

hpmctorque

As always, you gave a good analysis, grbeck. How are we to interpret the fact that you didn't mention Chrysler?

grbeck

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.

nippononly

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.

stever

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.

nippononly

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.

mattandi

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?

hpmctorque

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.

dtownfb

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.

alpine1

Absolutely! The executives at the domestic auto companies need the $50 billion for their "golden parachutes."

fintail

Not unlike the bank execs involved in the current bailout, no doubt :sick:

nippononly

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

Of course that's the question. So we have to look and decide if they have a viable business plan going forward, so that our massive loan to them might enable them to stay in business and prosper in the future.

Does Chrysler? No, in fact they are so clueless we ought to pay to have them disbanded.

Does Ford? No.

Does GM? Maybe. The plan may be good enough, but it may also already be too late, loans or no loans. And the corporate culture over there is still a major obstacle to their future success, good plan or no good plan.

It's a bad waste of our money.

Footnote: the Iraq War? I could and did identify that as a tragic mistake before we ever began it. The domestics' lack of any viable cars for the last 25 years? I could and did identify that mistake way back when as well, as did many many MANY others. Hindsight has nothing to do with this.

gagrice

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.

That is an excellent idea. GM and Ford have great small PU trucks with diesel engines that get 40+ MPG. They are sold every where but here and maybe Japan. They are kept out by old tariff agreements and repressive regulations.

The Feds could probably do more to invigorate the Domestic auto makers by relaxing strict regulations, than by throwing money at them.

I would also add that any strike against the Big 3 would stop the flow of Federal funds. And make the loans due and payable. The UAW sees a big influx of cash and think that it is theirs for the taking should end the deal right there. Dumping 100s of millions of dollars into GM while the UAW is on strike would be a big waste of tax dollars.

gagrice

The domestics' lack of any viable cars for the last 25 years?

Can the domestics build a competitive car that will compete with a Civic or Corolla in the USA with UAW labor? Do any of them have a small car built here in the USA that is competitive. If the answer is NO, why loan them money?

The only reason for the loans is to save American jobs. If there is no way the Big 3 can be competitive with UAW labor, why bother saving them. If the money goes to build cars in Canada, Mexico or Korea I find that sad. Let those countries subsidize their own workers.

andys120

Huh, relaxing standards to import Euro spec models does nothing to protect Rust Belt jobs. Lowering emission standards in an era of concern about greenhouse gases is a political non-starter.

Personally I wouldn't mind if safety standards were relaxed because there's too many people on the road who don't realize how easily they can be hurt if they don't pay full attention to driving.

grbeck

European safety standards are pretty strict - they are just strict in different ways than American safety standards. Allowing vehicles that meet European safety standards to be imported would not necessarily mean that the vehicles in question are unsafe.

European emissions standards are different. They allow more particulate emissions than the U.S. does (hence, the popularity of diesels in Europe).

If Detroit starts talking about being allowed to import models that meet Brazilian or Mexican standards (as GM and Ford have plants there), I would be worried and oppose that.

grbeck

gagrice: Can the domestics build a competitive car that will compete with a Civic or Corolla in the USA with UAW labor? Do any of them have a small car built here in the USA that is competitive. If the answer is NO, why loan them money?

The latest contract is supposed to wipe out this cost disadvantage (especially with the union taking over health care benefits).

hpmctorque

I believe the Focus is competitive. You may not consider it the best-in-class, but overall it's competitive, despite the fact that the platform dates back to the '00 model. The Cobalt is less competitive than the Focus. The Dodge Caliber is a decent car (I've rented two), but needs refinement to be fully competitive.

larsb

To answer the question posed by the title of this Forum:

There are not any synonyms for the word NO which are strong enough for me to use which would adequately describe my opposition to loaning them the money.

They made BAD AWFUL TERRIBLE business decisions, and they should be allowed to suffer the consequences of their own actions.

hpmctorque

While every reasonable person wishes to protect Rustbelt jobs, the issue at hand is whether and how to rescue the domestic auto makers. If they can become profitable again, many Rustbelt jobs will be saved. If not...

hpmctorque

"They made BAD AWFUL TERRIBLE business decisions, and they should be allowed to suffer the consequences of their own actions."

You make a valid point if you oppose the loan (or other the other forms of help mentioned in recent messages) on ideological grounds. I understand your position if it's based on a strict interpretation of capitalism, that weak firms must be permitted to fail. If your response is due to anger towards the auto makers, however, then it's not based on rational thought. Even though the outcome of denying help is the same, deciding based on economic ideology is more acceptable to me than deciding based on anger.

Unfortunately, this is a very complicated and mufti-dimensional issue. I've got mixed feelings regarding loans, but favor adopting European safety and emissions standards as a TEMPORARY expedient. After all, loans are temporary too. If necessary, I'd probably favor loans too, as a last resort, and without much enthusiasm, because I believe that one, two or all three domestic firms could survive, with additional time. I'll readily acknowledge that as a life-long auto enthusiast, the demise of the domestic auto makers would sadden me. The rational side of me also questions whether America and Americans would really be better off, over the long haul, with only imported brands from which to choose. I tend to think that it would be better to continue having foreign and domestic brands competing in the market.

One consideration in my reasoning of going along with loans, is that our government added to the confluence of hurdles by passing stricter CAFE standards when the domestic manufacturers were in a weakened state. Now as it happens, the advent of higher fuel costs overtook the new CAFE standards, at least in '08, and the marketplace quickly responded by assigning a higher priority to fuel economy. Nevertheless, since the latest CAFE standards may require the auto makers to invest more money over the long run, there's some justification for offsetting this with loans.

nippononly

But it's a global market, right? And GM and Ford have a strong global presence, right? And our CAFE standards remain the weakest in the developed world. Even China has higher fuel economy standards than us. The domestics had so long to prepare for this day, so much time, so little planning....

It seems to me that the only question really is how much the economy will suffer if we "let" the domestic automakers fail, vs how much it will cost now to bail them out with "loans" they probably won't be able to repay.

We are in for tens of billions in costs with the Fannie/Freddie bailout, if the NY Times is to be believed. And if they are estimating that much cost now, it will probably rise to the order of $100 billion before we are all done with it.

I don't think we can afford to bail out the automakers as well, and what's more I don't believe the economic costs of NOT bailing them out will outweigh the costs of going ahead.

I wish we could somehow just reward the best-performing of the three with the loans, and give them a leg up. My vote would be for GM to be the recipient. In that case, I think we would see Chrysler as we know it disappear in short order, maybe providing enough breathing room for GM and Ford to survive....

The Ford family should take the company private again and hack off all the unprofitable bits, start with a clean slate.

1stpik

Don't forget this:

The Big 3 took every opportunity to move their factories (and our jobs) to foreign countries. They didn't want us to build their cars, but they sure liked when we bought them. It was the "free market" at work in a "global marketplace" ..... capitalism at its best.

Now we're not buying their cars, they're stock prices are at mult-generation lows, and they want OUR tax money. Suddenly, socialism is the answer.

I don't think so.

Let these corporations go beg Mexico for some cash. If the government won't give 'em some money, maybe the drug cartels will.

kernick

Isn't the whole purpose of a corporation issuing stock to raise capital? Why wouldn't we insist on the Big 3 doing this first? because no one will buy the stock at a decent price?

So if private investors and bankers aren't willing to put their own $ into the corp., what does that tell you about the prospects of those investments? Why would I want tax money to then be invested?

Since people will still need vehicles, would it be so horrible if some of the Big 3 went under as corporations, and other manufacturers bought those plants and employed some of the same engineers and workers?

manegi

There is something to be said about this approach (let the capital market provide the funding).

Nissan had become a basket case in late 90s, and there was talk in Japan about it being bailed out by the Government. Ultimately good sense prevailed, and Renault was allowed to take a 37% stake in the company (1999) - One big difference between Nissan (in 1999) and the B3 (today) was that even when running out of cash, Nissan continued to invest in its product line - With the result that Carlos Ghosn only had to do some obvious cost cutting (shutting down a couple of plants in Japan), and Nissan came back roaring, with a USD 3.3 Bn profit in 2001, just two years after the Renault investment - since it had a strong pipeline of products anyway.

My point is - If the capital market is not investing, then there is something which is keeping them away. Government funding is unlikely to solve that problem, especially if it is debt (unless the capital market does not have any money left - that is certainly not the case right now). What would make sense is controlling equity stakes (considering the current market capitalisation of B2, this would cost a lot less than 50 Bn USD, and - if done well - provide a much bigger upside) in the two listed companies, and then perhaps forcing a merger to create a much stronger B1 from the US.

And if the Government provides loans to Chrysler, then you will get to hear the champagne popping in Cerebrus headquarters, since they are the ones who will keep the upside.

canadiantoyota

Be careful with the bailout money. The Ontario government gave GM a $275 million dollar grant with the written understanding that the Oshawa truck plant was to remain open until 2011 at the very least. Two months later, GM announced they were closing it and they will not return the grant money. The BIG 3 are not only financially bankrupt, they are morally bankrupt. They have continued to produce inferior cars (not all, but most) and have expected that because they are North American, that we have a duty to purchase them. Now that their total misunderstanding of the market has come home to roost, they want the governments to bail them out. Ford just accepted $80 million dollars to re-open an engine plant in Windsor (700 jobs) and three days later, announced the closing of a plant in Oakville (500 jobs lost). The bottom line is that while many profess to be "car guys", there are no car guys in charge at the Big 3. The bean counters are in charge and the product and treatment of employees and customers is reflected in that fact. Let the Big 3 stand on their own two feet. They created the mess, let them fight their way out of it. After all, in the good times, did they ever offer to give every taxpayer a 'bonus".??? Not on your life. When times are good, they pay huge bonuses to the executive ranks. Mark my word, they will continue to reward inferior performance by the executives with superior wages and benefits.

smithed

"Isn't the whole purpose of a corporation issuing stock to raise capital? Why wouldn't we insist on the Big 3 doing this first? because no one will buy the stock at a decent price?
So if private investors and bankers aren't willing to put their own $ into the corp., what does that tell you about the prospects of those investments? Why would I want tax money to then be invested?
Since people will still need vehicles, would it be so horrible if some of the Big 3 went under as corporations, and other manufacturers bought those plants and employed some of the same engineers and workers?"

Right you are! Do you want to buy stock (or invest in the junk bonds) of GM or Ford? (Chrysler stock is not for sale: it's part of a private company). You might as well heat your house by burning Treasury notes: down the drain.

I don't know if anybody has mentioned this: but the real issue may be the UAW. If the companies fail, does the government have to pick up the pensions? It may cost (the US taxpayers) as much or more to have them fail as to bail them out (provided they can right the ship. :mad:

grbeck

smithed: I don't know if anybody has mentioned this: but the real issue may be the UAW. If the companies fail, does the government have to pick up the pensions? It may cost (the US taxpayers) as much or more to have them fail as to bail them out (provided they can right the ship.

I'm sure that is a consideration, but please note that the government will be on the hook for both white-collar and blue-collar pensions in the event of a collapse of GM, Ford or Chrysler.

The UAW angle comes into play because both McCain and Obama want to win Michigan, and can't do so by telling UAW members to take their chances in bankruptcy court. That is why Obama has supported the bailout from day one (and even referred to it in his convention acceptance speech), while McCain backpedaled after initially opposing it.

dtownfb

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.

That is an excellent idea. GM and Ford have great small PU trucks with diesel engines that get 40+ MPG. They are sold every where but here and maybe Japan. They are kept out by old tariff agreements and repressive regulations.

Again I will ask why are the better GM & Ford vehicles over in europe and not in their home country, the USA? It's pretty sad that Ford has 40 mpg vehicles in Europe and have one vehicle that can achieve over 30 mpg in the US. This is at the heart of the problem. Forget the tariffs, why couldn't they simply develop a car int eh US that could achieve this type of gas mileage. I just don't understand.

Let them fail.

hpmctorque

The following should provide some clarification for this discussion...

"Auto loans could speed retooling
BY JUSTIN HYDE • FREE PRESS WASHINGTON STAFF • September 12, 2008

WASHINGTON -- The auto loan package before Congress could save Detroit's automakers billions of dollars and speed their ability to refit factories for hybrids and other fuel-saving models that customers want and regulators demand.

With just two weeks left before Congress calls it quits before the election, automakers and Michigan lawmakers worked Thursday on ways to broaden the $25-billion loan package and win approval from President George W. Bush.

Automakers have support of Democrats and some Republicans in both chambers, but the Bush administration has yet to signal its approval, and environmental groups issued their first organized opposition to the plan Thursday.

QUESTION: What could the loans pay for?

ANSWER: Under last year's energy law, the loans could pay for up to 30% of the costs for factory retooling. But the cars or trucks that the remade factory would build have to top their direct competitors' fuel economy by at least 25%.

General Motors Corp. could qualify for a loan to help convert the Hamtramck plant to build the Chevrolet Volt -- a car that drives its first 40 miles per day without a drop of gas but relies on unproven battery technology. But Ford Motor Co. wouldn't be able to get a loan that would cover retooling Michigan Truck in Wayne to build relatively conventional, gas-burning small cars.

Q: Could the rules be changed?

A: Automakers and Michigan lawmakers are hammering out proposed changes that would loosen some of the restrictions, allowing the loans to cover more retooling costs.

Q: Why are automakers pushing so hard for these loans?

A: GM and Ford are expected to burn through $24 billion in cash this year, and none of the Detroit Three expects a recovery in 2009. Those losses crimp Detroit's ability to add hybrids, electric vehicles and other high-tech vehicles to their lineups, even though GM and Ford still plan to spend $7 billion each this year developing new models.

Because their finances are so bad, Wall Street is quoting interest rates of roughly 15% for loans to automakers. The $25 billion would be lent by the U.S. Treasury, and the government interest rate would be closer to 5% -- saving $100 million per year for every $1 billion in loans.

The $25-billion program was approved last year, but Congress did not provide the $3.75 billion that the plan is estimated to cost. It originally was billed as a way to help automakers pay for meeting the 35-miles-per-gallon fuel economy standard by 2020, but the government estimates Detroit will spend $30.5 billion just to meet the targets for 2015, a cost estimate the automakers say is too low. High oil prices may push the market to the 35-m.p.g. target sooner than 2020, increasing the pressure on automakers to retool.

Q: How much could it help?

A: JPMorgan analyst Himanshu Patel said Thursday that if approved, a $25-billion loan program could "materially curtail bankruptcy risk" for GM, Chrysler and auto parts suppliers. Patel estimated that the loans could cover up to $6 billion of GM's costs in 2009 -- about as much as he expects the company to burn in cash. That report sent GM's shares up 11.6% Thursday.

Q: Is it a bailout?

A: Previous bailouts for Chrysler, airlines and Wall Street firms came as they stood at the brink of failure. Auto executives and Michigan lawmakers say the loans don't fit that pattern, noting the program wasn't called a bailout last year and was pledged to help reduce U.S. demand for oil.

Critics say there's no other name for it and that the financial risk to Detroit's automakers has never been greater.

Q: Can foreign automakers apply?

A: Yes, but so far they've shown little interest. Under the current law, the loans can be used only on plants that are at least 20 years old. That rules out many foreign plants in the United States, but Toyota, Honda and Nissan all have at least one assembly plant that could qualify.

It also rules out several plants of Detroit automakers, such as GM's Delta Township SUV plant and Chrysler's engine plant in Dundee. Ford would likely have to argue to include Dearborn Truck, since it opened in 2004, even though it's part of the historic River Rouge complex.

Honda has said it won't take part in the loans. Toyota said it hasn't taken a position on the program but doesn't want it to disadvantage any particular company.

Q: Can U.S. automakers use the money on foreign plants?

A: No. The loans can go toward plants in the United States only.

Q: Who else qualifies?

A: Parts suppliers would also be able to apply for the loans to retool, under the same guidelines that apply to automakers.

Q: Can the industry get more than $25 billion?

A: Not likely this year. But don't be surprised if the industry succeeds this month and comes back for more when Congress returns in January.

Q: What would automakers have to give up?

A: That's a $25-billion question. So far, there's no sign the industry would have to make additional sacrifices to win approval; automakers contend the 35-m.p.g. standard was their concession. But other aid plans, including the Chrysler bailout, have required cuts and belt-tightening in return.

Environmental groups -- including the Union of Concerned Scientists and the Sierra Club -- asked lawmakers Thursday to tie the loan to even tougher fuel economy standards.

'The industry created the mess it's in now, and did it while laughing all the way to the bank," said Joan Claybrook, president of Public Citizen. "It's time for these companies to give back to the American people.' "

kernick

It originally was billed as a way to help automakers pay for meeting the 35-miles-per-gallon fuel economy standard by 2020,

So the auto manufacturers can't figure out how to hit 35 mpg when given 12 years? Maybe they need to review the size, weight and engine displacement of their current models? Bigger and more power is not the correct way to go to get fuel economy. Maybe the average vehicle should be 2500 lb, 165" long, and a small (1.3L) 4-cyl turbo or a small diesel with 120hp or so.

hpmctorque

We seem to be heading in that direction, kernick, although I don't think the "average" here will ever get quite that small.

The challenge in the U.S. has always been to produce small cars profitably. If that's what the American public had wanted all along, and motorists had been willing to disassociate themselves with the notion that bigger means better and small is cheap, our domestic manufacturers would have supplied these cars.

euphonium

Profits of Japanese car sales, made in the USA, go to corporate HQ in JAPAN!

So why did the UAW worker drive a Toyota or Volvo to work without any guilt? :P

andys120

So why did the UAW worker drive a Toyota or Volvo to work without any guilt?

I doubt many auto workers drive Volvos but those driving Toyotas, Nissans etc. probably realize that while the Japanese makers are adding American plants and jobs
thoise headquartered in Michigan are closing American plants, cutting jobs and shipping them off to Mexico and Canada.

gagrice

Third party presidential candidate, Ralph Nader, is coming out against GM, Ford, and Chrysler's bid for $50 billion of low interest federal government loans.

andys120

Third party presidential candidate, Ralph Nader, is coming out against GM, Ford, and Chrysler's bid for $50 billion of low interest federal government loans.

I guess he won't be carrying Michigan then. :P

stever

Nader keeps showing up on my radar, but that guy apparently doesn't know how many houses he owns either (link).

Meanwhile, back to the topic, the bailout number is now down from $50 million to $25 million. Sounds like a car dealer tactic. :shades:

Is that number more palatable?

gagrice

I think there is signed legislation for $25 billion tied to the new CAFE standards.

Congress has authorized $25 billion in low-interest loans to retool automakers’ factories for fuel-efficient vehicles, though it hasn’t approved funding. Both presidential candidates have endorsed the plan.

Meanwhile, Detroit is lobbying for a doubling of these prospective loans, to $50 billion over three years, arguing that the government has an obligation for imposing fuel-economy standards.

gagrice

Pretty much the same information on Nader as the book "Do as I say, Not as I do".

stever

Ah, the way I thought I heard it was that the Big 3 said $25 billion was enough. So they got one pot of $25B, now they are playing the F&I part of the deal for the other $25B.

They'll probably nick the taxpayers for mop & glow and pinstriping.