We Need 50 Billion ASAP!

[Aaron]

This link has been dressed.

GM, Ford Seek $50 Billion From U.S., Double Request (Update2)

By Jeff Green

Aug. 22 (Bloomberg) -- General Motors Corp., Ford Motor Co., Chrysler LLC and U.S. auto-parts makers are seeking $50 billion in government-backed loans, double their initial request, to develop and build more fuel-efficient vehicles.

The U.S. automakers and the suppliers want Congress to appropriate $3.75 billion needed to back $25 billion in U.S. loans approved in last year's energy bill and add $25 billion in new loans over subsequent years, according to people familiar with the strategy. The industry is also seeking fewer restrictions on how the funding is used, the people said today.

GM and Ford lost $24.1 billion in the second quarter as consumers, battered by record gasoline prices, abandoned the trucks that provide most of U.S. companies' profit and embraced cars that benefit overseas competitors such as Honda Motor Co. U.S. auto sales may drop to a 15-year low this year and fall even more in 2009, analysts have said.

``Next year is going to be a make-or-break year in terms of survival,'' said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, which oversees $22 billion in assets, including GM and Ford bonds. ``Any help like these government loans would be a huge boost.''

Standard & Poor's said Aug. 19 that U.S. light-vehicle sales will fall to 14.2 million units this year from 16.1 million in 2007 and drop again to 14.1 million next year. The ratings company said there is a 20 percent chance that this year's sales will be as low as 13.6 million and 11.7 million next, presenting an ``overwhelming challenge'' for U.S.-based companies.

Plans at Risk

``Our plans, which require significant investments, are at risk because of limited access to capital,'' said Greg Martin, a spokesman for Detroit-based GM. He declined to comment on whether GM is seeking more than the original $25 billion. ``This program will open capital that is necessary to make sure our transformational plans continue at full speed and give us the best chance to succeed.''

Mike Moran, a spokesman for Deaborn, Michigan-based Ford, said the automaker had no comment on any funding beyond the $25 billion already approved.

``The priority is to get the appropriation that has already been approved,'' said Linda Becker, a spokeswoman for privately held Chrysler, based in Auburn Hills, Michigan. ``Conversations as to why or how we should expand that amount are ongoing.''

Congress needs to appropriate about $3.75 billion to cover the upfront cost of the government loans, according to a July 25 estimate in a letter to House and Senate leaders. The letter was sent by 71 members of Congress urging support on the issue.

`Horrible Idea'

``This is a horrible idea, another transfer of funds to failed ventures,'' said David Littmann, senior economist for the Mackinac Center for Public Policy in Midland, Michigan, which describes itself as a supporter of free-market ideals. ``If this were a good idea, the market would price the debt accordingly and give them the money.''

Auto-industry lobbyists want Congress to set rules that will allow the initial $25 billion to pay the full cost of upgrading assembly plants, parts production or engineering to improve fuel efficiency, said the people, who didn't want to be identified because the plans are still being developed. The current rules limit loans to 30 percent of the cost.

Broader Interpretation

The industry is also seeking a broader interpretation of what projects are eligible. That might allow the funds to cover the conversion of truck plants into car plants, for example, in addition to paying for vehicles with the highest mileage, such as hybrid-electric cars or fuel-cell models, the people said.

The loans were authorized in last year's Energy Independence and Security Act. Rules to free up the funding are supposed to be written within a year of its December passage, Representative John Dingell said in an Aug. 4 letter to U.S. Department of Energy Secretary Samuel Bodman.

The auto industry wants funding for the loans approved before the current legislative session ends next month. Dingell and other lawmakers have said Congress needs to consider the impact the companies have on the U.S. economy.

GM, Ford and Chrysler employ 240,000 people in the U.S. and account for 7 out 10 U.S. auto workers, according to a report released this year by the Automotive Trade Policy Council in Washington, which represents trade interests of U.S. automakers. The companies support another 5 million jobs at auto dealerships, suppliers and service providers.

The automakers purchased $156 billion in auto parts last year and have invested $225 billion in U.S. plants and equipment since 1980, including $10 billion last year, the report said

GM has fallen 58 percent this year, and Ford has tumbled 34 percent. GM rose 52 cents to $10.44 at 4:15 p.m. in New York Stock Exchange composite trading, while Ford was up 5 cents to $4.47.

``We've seen these kinds of bailouts for the financial companies, why not the automakers?'' said Aaron Bragman, a Troy, Michigan-based auto analyst for Global Insight Inc. ``The big problem is that a lot of people in Washington don't see a value in the U.S. auto industry because they have a foreign plant in their district that is doing just fine.''

To contact the reporter on this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net

Allow me to go out on a limb here and give a double fisted bird to the domestic automakers, you guys have had 30 years to develop a more efficient automobile and couldn't be bothered. Rather you fed the gas guzzling craze with your ridiculous SUV's. Don't come asking for money because you were to stupid to learn the lesson the "Japanese invasion" should have taught you. I hope you enjoy going out of business and I propose the US government take that 50 billion and use it to train the plant staff in new trades, bet it'll cost a fraction of that.

[Sionnach Glic]

Is that the sound of greedy motor companies colapsing that I hear?
Allow me to be the first to point and laugh.

[Monroe]

I got mixed views on this. Sure its their own fault but for the economy's sake a bailout might be needed :-/

[Aaron]

I got mixed views on this. Sure its their own fault but for the economy's sake a bailout might be needed :-/

Really, 50 billion to add onto your national debt isn't a good thing.

[Monroe]

I got mixed views on this. Sure its their own fault but for the economy's sake a bailout might be needed :-/

Really, 50 billion to add onto your national debt isn't a good thing.

True. But neither is losing more jobs.

What we could do is put that 50 billion into a different company in the US. Hell maybe start one somehow that specializes in cars for the future. I think that might be a good idea. I just don't know the legality of being able to do that.

[Aaron]

True. But neither is losing more jobs.

What we could do is put that 50 billion into a different company in the US. Hell maybe start one somehow that specializes in cars for the future. I think that might be a good idea. I just don't know the legality of being able to do that.

Or simply retrain them. I'm sure the US could use 240,000 new carpenters, electricians, millwrights, plumbers etc.

Either way is a better option, US automakers have proved they can't keep up. They aren't asking for a loan, their asking for a handout, for the government to pay 100% of the cost associated with upgrading.

[Teaos]

Good idea Kendall.

They can then you can put the other 49.9 billion on black in roulett and double their money!

[Aaron]

Good idea Kendall.

They can then you can put the other 49.9 billion on black in roulett and double their money!

Their doing that already with Cookoo McMonkey Pants in office.

[stitch626]

Well...
If both Ford and GM go under (which is not likely, but still a possibility) that is around one or two million poeple without jobs. Our economy is bad enough as it is. With that many extra people on unemployment, we'll be close to the Great Depression again.
Not to mention the several millions who will have difficulty when their car has trouble because they happen to own an Amercan car and there are no parts.

[Aaron]

Well...
If both Ford and GM go under (which is not likely, but still a possibility) that is around one or two million poeple without jobs.

240,000 actually, it's in the article.

Our economy is bad enough as it is. With that many extra people on unemployment, we'll be close to the Great Depression again.

Hardly, these people can be retrained and re-employed else where.

Not to mention the several millions who will have difficulty when their car has trouble because they happen to own an Amercan car and there are no parts.

There's an entire industry that makes aftermarket parts for automoblies of all brands and ages. There's no reason why they would go under, in fact they'll be making all kinds of profits if the Big Three go under and could probably employ a good portion of the fired workforce for a while (the ten years or so before the last cars built fall apart).

Edit: And those five million others than are in side industries can transfer over to the newly expanding foreign car companies that will take up the slack in the US.

[stitch626]

240,000 actually, it's in the article.

Is that all of the employies of Ford and GM, or just the factory workers.

Hardly, these people can be retrained and re-employed else where.

We don't have enough jobs for everyone as it is.

There's an entire industry that makes aftermarket parts for automoblies of all brands and ages. There's no reason why they would go under, in fact they'll be making all kinds of profits if the Big Three go under and could probably employ a good portion of the fired workforce for a while (the ten years or so before the last cars built fall apart).

Good point. I'll conceed that one.

[Teaos]

The big economic down side would be losing one of their main car makers, they would probably never get that market back and the US doesnt like losing industry.

[Aaron]

The big economic down side would be losing one of their main car makers, they would probably never get that market back and the US doesnt like losing industry.

They could simply convert the existing industry into AFV plants, solve part of the problems of the US military equipment and produce shiny new weapons to sell to their client states.

[Mikey]

Agreed with almopst everything, but allow me to shed a half-insider's POV.

It's not about learning or not learning anything from the Japanese. GM, I can speak to specifically, learned a great deal from the Japanese car companies. The problem stems from something we TAUGHT the Japanese car manufacturers: leasing. Originally just used for commercial companies, it started to catch in the retail market, until consumer pressure caused it to require residuals so high that very few people were buying out their leases. Round one: a huge number of banks got out of the leasing biz, because they ended up with lots full of off-lease cars and no outlets for them.

Manufacturers and a couple of banks (Chase, Wells Fargo) stayed in, until now. Round two: the manufacturers banks Ford Motor Credit, GMAC, Chrysler Financial, NMAC, etc.) now are getting vehicles back that they are buying off-lease for thousands of dollars over retail value. They all had residual insurance to cover the write-off between the buy-back price and the resale price; now, that gap is so great that the insurance is almost as much as the write-off itself. Add the fact that many "manufacturers" banks are actually independent now, due to being sold off for capital, and we get to round three: Chrysler Financial has explicitly said "no more leasing," and Ford and GMAC are doing it backhanded - not subventing lease programs, so they become ridiculous enough that nobody will lease. The only reason that the Japanese auto finance companies aren't out of it yet is because they supported 24-month leases (for completely unrelated reasons) - but the problem is catching up to them, too.

So yes, the problem can be boiled down in a simplistic way to being a product of their own greed, or more properly a product of their own desire for short-term gains over long-term health. Just not for the same reasons that most people assume.

[Aaron]

I never understood the leasing thing, I bought my first car and I bought my second car. Everyone around me asked me why I wouldn't lease because I could turn my car in every three years for a new one, congrats f*uckheads, not only did you screw yourselves out of a good five years (or more) out of no car payment but it seems you are partially responsible for the death of an industry.