Shares of General Motors (NYSE: GM) are down more than 6% today, perhaps in part because of this unhappy line (subscription) from The Wall Street Journal: "In another unhappy chapter for the strapped industry, U.S. auto makers and their finance arms have found their access to credit further restricted because of the upheaval in the markets."Tightness in the commercial paper market and the companies' deteriorating prospects are making it difficult for Ford (NYSE: F), GM, and Chrysler to gain access to the cash they need to operate. GM's "CCC" rating from Fitch isn't helping matters either.
What's the solution to this? If you believe the auto industry, it's a taxpayer-funded "loan" of as much as $50 billion. That's right: no private lender is stupid enough to throw good money after bad at the cash-burning Detroit auto companies. But why shouldn't taxpayers? After all, GM spends more than $8 million per year on lobbyists.
Prudent lawmakers should take the hint from the credit markets: if private business don't think GM is a risk worth taking, it's irresponsible to toss our money into it too. The auto lobby can whine all it wants about the state of the credit markets but the reality is that the main obstacle for GM is its own deteriorating financial health.
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Reader Comments (Page 1 of 1)
9-23-2008 @ 4:40PM
Ken said...
I strongly disagree with your primary point of this post - namely, that public loans and private investment are deserving of an apples-to-apples comparison. The biggest difference is the interest rate that the domestics are attempting to access through public funding (by some reports, less than 50% the going rate of private investment capital). Of course private industry is not going to want to loan money in the range of 5%, which is precisely why the auto lobby is working so hard for these loans.