The first rule of public relations is never get in a fight with anyone who buys ink by the barrel. And a major tenet of investing is don't take a stock position in conflict with Congressional policy, once Congress has committed to a program. The wisdom behind the second adage, like the first, is obvious enough: Congress has the ability to suddenly and substantially change the investment landscape.
Case in point: Congress, which is currently hearing testimony on a performance-based rescue package for General Motors (NYSE: GM), Ford (NYSE: F), and Chrysler, could end up further funding reform by the Big Three by buying millions of the companies' vehicles for the U.S. government's auto fleet.
'Catching three fish with one cast'
Economist David H. Wang says the tactic has appeal in several areas -- economic, industrial, energy.
"It would help the three companies retain essential employees while transforming their operations, it would keep more industrial spin-off jobs in the U.S., and it would save energy by increasing U.S. government auto fleet efficiency," Wang said. "It would be like catching three fish with one cast and I think the new Obama administration would look very favorably on the energy efficiency aspect, both private and public sector dimensions."
Shares of GM fell 30 cents to $2.79, while Ford declined 16 cents $1.52 in Wednesday morning trading.
Wang said he sees this scenario as lawmakers huddle in Washington: Congress agrees to provide a loan to the Big Three (or a loan guarantee, if credit markets loosen) in stages, then agrees to purchase a percentage of current vehicle models for the U.S. government fleet -- at a substantially reduced sticker price -- in exchange for successful development of both a next-generation vehicle and a state-of-the-art industrial platform, among other performance requirements.
"The plan would have semi-annual metrics. If Congress or the General Accounting Office concludes that the Big Three are under-performing, the additional loans are denied, and the Big Three are on their own." Wang said. "The plan also would provide the three companies with auto sales during a time of declining private sector sales, easing their transition to the new era."
Auto Sector Analysis: We're still early in this Big Three rescue package saga: all Big Three stakeholders -- shareholders, creditors, workers, pensioners, managers and dealers -- have to agree to concessions, and management must demonstrate that it can develop and manufacture 'a game-changer' -- a next-generation, super-efficient vehicle -- before Congress will approve the loan or loan guarantee. (It would also help if the Big Three commit to introducing a few models that young professional couples want to buy, models with lasting curb appeal.) If the above occurs, President Bush will then likely trade signing the Big Three rescue package for Congressional approval of a free trade pact with Columbia.
If it comes down to a 2009 vote, President-elect Obama is likely to sign the rescue legislation, if it contains the aforementioned stakeholder sacrifices and fuel efficiency improvements.
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Reader Comments (Page 1 of 1)
11-19-2008 @ 3:12PM
Libertynews said...
You can now read this blog in an easy to read newspaper format at:
http://www.Libertynewsprint.com
11-19-2008 @ 4:04PM
Tom Rocha said...
Great idea help Detroit retrofit their existing inventory to provide really efficient cars (as they do for overseas markets) putting people to work on really constructive projects leading toward our objectives of improved energy efficiency, etc, etc, etc.
11-19-2008 @ 4:09PM
Jeff in Orlando said...
I think the government should buy cars from the Big 3. This is a better plan for our tax dollars than just giving them billions with the chance the taxpayers get nothing in return. I would demand very high quality from them as well as concessions from both labor and management. There is plenty of blame to go around as to why the Big 3 are in such desperate straights. Whatever the government decides to do with the auto makers, they need to do it right and not just put a band-aid on the present business model.
11-19-2008 @ 8:17PM
william lindblad said...
Hmm? Who has been making the government fleet BMW? The last time I looked the pres. usually rides in an armor plated Caddy and Bushy likes chevy pick ups.(the BIG ones).
The entire auto industry is in trouble - world wide. It's a direct result of housing and making a product that lasts longer. There too many people making cars and too much production capacity. At the moment, the ONLY car maker NOT in financial trouble or cutting back is the French Renault. I am talking the majors, not the niche guys.
What is being asked of Congress and the taxpayer are LOANS, not hand outs and our 25 billion is surpassed by the EU's 50 billion - that's Euro's, not dollars. They have a bigger problem. Japan is subsidizing as of now, but they are going to be in this act before long. The government acted quickly and poorly with the banks and if they don't get off the talk show routine and act on this one - the old "atomic attack" will apply. To those not old enough - that means put your head between your legs and kiss your ass goodbye. AKA depression.
11-19-2008 @ 8:55PM
John Galloway said...
They should be buying these all along.....if they have been buying imports then it the Bush whitehouse's fault...those idoit right wingers think if they buy Japs or wetbacks cars they will hurt the middle class and they have....now we can not buy the cheap tvs, and computers at walmart made in COMMUNIST CHINA or the cheap cars made all over the world, because we do not have a job, the good paying job we use to have has been shipped over seas to slave labor for about $1 an hour, sunup til sundown, 7 days a week and if you do not like it...quit!!
11-22-2008 @ 5:35AM
rick g said...
What a bunch of nonsense. This can't be serious. Why not pass a law to require the government to buy the products at the company at which I work?
These guys are running their companies so poorly that they are losing $1000 every time they sell a car. They were losing boat loads of money even when the economy was robust and GM was selling 1 of every 4 cars sold in America. You guys really think the problem with the car companies is that the government isn't buying enough of their cars?
I think this suggestion is the guy losing money hauling watermelons to Florida so he buys a bigger truck scheme.
12-02-2008 @ 1:23PM
Troy said...
The big three products are outdated, they are like selling home phone lines in a cell phone world. They just keep trying to sell improved gas consuming auto's. They need to sell total electric auto's, that is what the world needs and they have no incentive to go there, they have millions in old machines and designs. The gov't should require production of total electric autos by the tens of thousands. Let the gov't use them first and then resale to dealers. We don't need an eletric to go 300 miles, we need an electric to go 100 miles. ASAP