Lost in this weekend's news about the $700 billion bailout package for the banking industry was a $25 billion loan package for United States auto manufacturers. This package comes at a time when apparently Congress and the President believe that the American people will see $25 billion as a pittance compared to the $700 billion they're already planning to spend on mortgages. While there certainly is precedence for this move --- the government loaned $675 million to Chrysler in 1980--- this loan package is several orders of magnitude larger. Ryan Pfenninger of MarketRiders is outraged at this loan package, claiming it is anti-competitive to startup companies like Tesla Motors who are investing their own money in alternative technologies like battery power. $25 billion is a lot of money. Detroit should not be able to argue for 30 years against improved fuel mileage and better technology, and then come back to the same government they persuaded into facilitating their failure, for a bailout.
He points out the immense irony in this loan to auto manufacturers. According to Ryan, General Motors (NYSE:GM), Ford (NYSE:F), and Chrysler are currently struggling significantly against Japanese and other foreign manufacturers who have spent the last many years improving fuel efficiency and developing hybrid and other alternative technologies. If Detroit had spent as much time, money, and effort in research and development as they did lobbying Congress to keep fuel mileage standards low, and made competitive non-gas guzzling vehicles, I would venture a guess these loans wouldn't be necessary.
Ryan believes that most people understand a mortgage bailout was necessary. But he's not so sure that if Detroit fails, this could cripple the United States economy. There are plenty of foreign auto manufacturers with operations in the United States -- Toyota (NYSE:TM), Honda (NYSE:HMC), and Nissan (NASDAQ:NSANY)-- who could easily pick up the slack. Their vehicles are outselling American automobiles. They are building plants in places like East Liberty, OH and Lincoln, AL, providing jobs for people displaced by the failure of Detroit.
Jim Press, Vice Chairman of Chrysler, said that this loan package will reduce America's dependence on foreign oil. Given that other manufacturers are already well at work on these technologies without the need for this money, Ryan finds his statement hard to swallow. Chrysler Chairman Bob Nardelli was quoted as saying this money "...is not a bailout." This is simply not true. Detroit was relegated to borrowing from the government because the private capital markets are shut off to it due to bad credit ratings and history of financial losses.
Mitch Tuchman is founder of MarketRiders offering investors powerful but easy software to take control of their own investing -- without brokers and advisers and their expensive fees -- in just a few hours a year.
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Reader Comments (Page 1 of 1)
9-29-2008 @ 3:43PM
Mick said...
Careful, Mitch, it's "orders of magnitude."
9-29-2008 @ 4:24PM
clikdawg said...
Precisely. The hallmark of this Administration has always been misdirection, and while the national eye has followed the preposterous bail-out bill hell's-a-poppin' along the usual broad Administration front. Money being fronted right and left, offshore drilling bans abandoned, oversight a joke in the sheer complex multiplicity of the current round of attacks on the Treasury.
Once y'all get done crowin' about the Republican skunxin' of the Red Herring Bill (and, incidentally, the ridiculous-looking Democratic leadership), you will find yourselves with an incredibly huge hang-over from Stuff Sneaked Through Whilst You Was Looking The Other Way.
The total will greatly exceed that absurd $700 billion, with not a word of debate or opposition uttered.
Gotta get up early in the morning to run with these puppies -- and this nation ain't hardly up to it.
9-29-2008 @ 9:17PM
CR said...
Here's a nice article on the current $700 Billion debacle:
http://www.courant.com/news/opinion/commentary/hc-commentaryhubbard0914.artsep14,0,5673162.story
9-30-2008 @ 7:01AM
al coholic said...
A billion here a billion there...you know the expression...pretty soon we're talking real mony here.
These numbers are staggering! Who can blame people for saying enough already...these companies didn't care squat about us until now when they are periously close to bankrupcy.
Your arguement about the arrogance of the big three is right on. Why should we save them when they will only screw us again!
Maybe if we let them fail new, more efficient American companies will emerge. One thing for sure...if we bail the big three out, as soon as the immediate crisis is over it will be business as usual again. That alone is good enough reason not to loan them any money in my opinion.
9-30-2008 @ 9:09AM
LA26 said...
If american tax payers are forced to pay them we should receive double back.
That won't happen though.What there attempting to push through is a patch and not an overhaul.
You can't patch something that is fundamentally unsound to begin with.These CEOs receive no backlash from engaging in unsafe business practices.
Can I just stop paying for my car and ask my neighbor's to bail me out because the economy is rough?
Let capitalism work.It would be nice to see it outside of the small businesses in America.