Detroit is lobbying very hard for government assistance. Claiming severe hardship, the Big Three automakers -- Ford (NYSE: F), General Motors (NYSE: GM) and Chrysler -- are requesting loans that will prevent a complete collapse of the industry.
The past few days have been full of debate on the matter. With so many issues and questions regarding the merits of a bailout, answers will be difficult if not impossible to come by.
"Throw something up against the wall and hope it sticks" seems to be the modus operandi of the current administration with respect to the financial sector bailout. Now, Detroit is essentially asking for the same thing.
Critics are rightfully upset. There is no guarantee that loans to Detroit will ever be paid back. What results will accrue for taxpayer effort? Is this simply a black hole? Which industry will be asking for help next?
These are all legitimate questions.
The case for the bailout is simple: No money from Washington results in bankruptcy with a chance of complete failure. With that failure comes the loss of three million jobs up and down the auto food chain.
And there is the rub. This is more than just the Big Three automakers -- they and their suppliers are all at risk of complete and total collapse.
One such supplier is Lear Corp. (NYSE: LEA).
LEA makes auto parts focusing on seating systems and electrical distribution systems. The company was founded in the early 1900s when the car was born. Today, after a year of complete disaster, the company has a modest $110 million market capitalization. At its peak within just the last 52 weeks, LEA held a $2.6 billion market cap.
What happened is simple. High oil prices changed the landscape of the entire auto industry. Suddenly, best-selling trucks and sport utility vehicles were no longer in demand. The credit crisis made matters worse by making it difficult for buyers to obtain financing.
It has been a perfect storm of negativity. Failure is right around the corner. Without help from Washington, companies like LEA are likely to disappear.
With the Democrats in control, it seems unlikely that Washington will turn its back on Detroit. As such, with dollars in hand, the industry can continue to operate. To the extent they use the money wisely, by converting the business to sustainable products that help with energy conservation and alternative fuels, the loans will be money well spent.
If change is slow to come, the loans will be far from enough to save the industry. With LEA trading for less than $2 per share, an investor today is betting that the industry will survive.
There certainly is momentum building to do whatever it takes to make sure of that outcome. If so, owners of LEA could benefit greatly.
It's a high risk/high reward speculation.
Jamie Dlugosch is a contributor to InvestorPlace.com.
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Reader Comments (Page 1 of 1)
11-18-2008 @ 4:47PM
sherry said...
We have the knowledge, we have the technology, what America lacks is a plan. Jeff Wilson has a new book out that is beyond awesome. The Manhattan Project of 2009 Energy Independence NOW. He walks you through every aspect of oil, what it is used for besides gas, our depletion of it. The worlds increased need ie 3rd world countries becoming more modernized and consuming more. He explains EVERY alternative energy source and what role they can play to replace oil. His research is backed up with hard data and even includes a time frame and proposed legislative agendas to wean America off oil. www.themanhattanprojectof2009.com
11-20-2008 @ 8:04PM
Michael A. Grand said...
Wednesday, November 19, 2008, USA
The World Needs a New Industry
The Big Three USA North American Operations (NAO) Auto Industry, General Motors Corporation, Ford Motor Company and Chrysler Company have reached the end of its Incubation stage of Industrialization. They will merge, retool and successfully give birth to a new industry. This industry will exceed the development of both The Manhattan Project and The NASA Moon Landing.
The World is about to see how American Know-How in the USA can pull together to create a better World. The NAO Automobile Industry will continue to work under a bankruptcy clause. It will be allowed to make parts for previously built vehicles. The industry will begin to merge and eliminate product lines. This will allow the old way of doing business to fade away. It will emerge from bankruptcy with a new intent for humanity’s success. NAO Auto Industry will go for the works or it will be oblivion.
Homes, not cars will be built for Global distribution and retrieval. Eco-technical homes and Tri-Townhouse Omni –Inclusive Cities will be created to raise the living standards of all humanity.
The USA NAO Auto Industry will pull us out of our Global Economic Crisis and create a sustainable economy for centuries to come.
Dr. Michael A. Grand, Futurist / Visionary
Critical Path Educational Services
StarSpace Structures: Controlled Living Environments
Intellectual Integrity Project Director
Boynton Beach, Florida USA
11-19-2008 @ 5:31PM
Avi said...
GM needs the magician of marketing that he also technical prophet. Only in combination with two of these elements it's possible to recover the company.
Without a doubt there are in the repository of GM knowledge of adequate developments that can be used to create the "new vision" for the car industry.
GM has to think manically out of the box, otherwise there is no future for GM.