Should Congress buy millions of Big 3 vehicles for government fleet?

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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