Automakers go begging for bailouts

[aerius]

Yahoo finance link

Automakers seek Fed loans to ride downturn: report
Friday August 22, 11:30 am ET

DETROIT (Reuters) - The Big 3 Detroit-based automakers are seeking about $25 billion in federal loans as they struggle to ride out a steep downturn in U.S. auto sales, The Wall Street Journal reported on Friday.

Lobbyists for the U.S. automakers -- General Motors Corp (NYSE:GM - News), Ford Motor Co (NYSE:F - News) and Chrysler LLC -- briefed White House officials, as well as U.S. Rep. John Dingell and other Michigan Democrats, on a possible bailout and plan to unveil the proposal after Labor Day, according to the report.

The plan is for the government to lend some $25 billion to the automakers in the first year at an interest rate of 4.5 percent, or about one-third what the companies are currently paying to borrow, the report said.

Under the proposal, the government would have the option of deferring any payment at all for up to five years, the article said.

Representatives at GM, Ford and Chrysler were not immediately available for comment.

In a letter to U.S. Senate Majority Leader Harry Reid and House of Representatives Speaker Nancy Pelosi, Michigan congressmen sought up to $25 billion in low-interest credit for U.S. automakers and parts suppliers from the federal government.

"This incentive program will make it more economically feasible for U.S. auto manufacturers and part suppliers to retool their facilities by providing low-interest credit," said the letter, dated August 1.

"The federal government must be a strong partner in the investment in the advanced technologies," the letter said.

GM Chief Executive Rick Wagoner said on Thursday that the top U.S. automaker was seeking federal loan guarantees for itself and its suppliers. He declined to say how much the company was looking to borrow under such a program if it were approved by the government.

The embattled automakers are closing truck plants and laying off thousands of workers in response to changing consumer tastes and to conserve cash at a time when U.S. vehicle sales are hovering at decade lows. At the same time, the companies are ramping up investment in more fuel-efficient small cars, hybrids and electric vehicles in response to record gas prices.

The Detroit Free Press reported earlier this month that executives at GM, Ford and Chrysler met and agreed that they would need about $40 billion to ride out their current troubles, and the way out of the losing streak would be a government bailout.

I expect the airlines to go begging for handouts any day now, and I'm actually a bit surprised that the automakers beat them to it.

[General Zod]

Whatever happened to letting businesses that couldn't stay competitive sink?

[Akhlut]

Are these the same auto companies that oppose emissions regulations and the like?

Why is it that big companies always oppose government when they're doing well, but as soon as things start going pear-shaped, they go begging to the government to bail their asses out?

[Elfdart]

They should have learned their lesson in the 1970s and stopped building gas guzzlers.

Fuck 'em.

[RedImperator]

Whatever happened to letting businesses that couldn't stay competitive sink?

That's a fine re-election strategy. "Hey, let's let GM go tits-up and throw hundreds of thousands of voters out of work. That always gives them a warm fuzzy feeling about the incumbent." I can't imagine Washington letting the automakers go bust. Now, that said, they could at least punish them somehow, but fat chance those whores would ever do that to such generous campaign contributors.

[General Zod]

That's a fine re-election strategy. "Hey, let's let GM go tits-up and throw hundreds of thousands of voters out of work. That always gives them a warm fuzzy feeling about the incumbent." I can't imagine Washington letting the automakers go bust. Now, that said, they could at least punish them somehow, but fat chance those whores would ever do that to such generous campaign contributors.

From what I can tell, it says to me that they don't care if the demand isn't meeting their supply anymore; as long as you're big enough the government will still bail you out. Not really a good message to be sending, imo. I'd certainly feel less animosity towards it if they ensured there was some kind of steep penalty involved, though.

[Tsyroc]

Whatever happened to letting businesses that couldn't stay competitive sink?

That's a fine re-election strategy. "Hey, let's let GM go tits-up and throw hundreds of thousands of voters out of work. That always gives them a warm fuzzy feeling about the incumbent." I can't imagine Washington letting the automakers go bust. Now, that said, they could at least punish them somehow, but fat chance those whores would ever do that to such generous campaign contributors.

I could go for that. Bail out the companies but stick it to some of the higher ups, past and present, responsible for the companies needing to be bailed out. Make them return some of those bonuses or change some of those golden parachutes to lead.

[Illuminatus Primus]

The problem with the U.S. is its regulation of business is a one-way affair. When they fuck up, we give them money and loans to bail them out, and the stockholders in general, and the upper management in particular get to reap the awards. They should be forced to submit to somesort of government interference in exchange for money. As far as I'm concerned, we're buying something, not giving away charity.

[ArmorPierce]

Right... you guys were fighting tooth and nail against government regulations over things such as emission standards which might have put you into a better situation today and now that that has com back to bite you in the ass you want a government bail out. So basically you want high growth but for the risk you want a government bail out. You can't have your cake and eat it. Well I'm betting in this case you can, but you shouldn't anyway.

[Jade Falcon]

Maybe I'm a bit naive here, and I'll readily admit I don't know the full state of the autoindustry in the USA, but I imagine the Japanese companies like Mitsubishi and Toyota, companies that do build smaller vehicles (I'm aware the larger Camry is one of Toyota's best sellers) are still doing okay.

[aerius]

I'll have to borrow my buddy's JD Power charts again, but I do remember Toyota being down in the double digits along with GM & Ford. I can't remember the sales figures for Mitsubishi but they're down too. I don't recall seeing any green on the charts, every single manufacturer's sales were down.

[SirNitram]

Toyota and such aren't crashing and burning like the Detroit Three, but they're taking hits from the global contraction. The thing is, they were making profits well into the period where the Three were taking heavier and heavier losses.

The Detroit Three will be bailed out because the idea of not slavishly obeying the 'American Auto Industry' is insane, unless it's, you know, one of those evil companies that doesn't work out of Detroit.

[J]

Actually, we want $50 billion...

Bloomberg link

GM, Ford Seek $50 Billion in U.S. Loans, Doubling First Request

By Jeff Green

Aug. 22 (Bloomberg) -- General Motors Corp., Ford Motor Co., Chrysler LLC and U.S. auto-parts makers are seeking $50 billion in government-backed loans, double their initial request, to develop and build more fuel-efficient vehicles.

The U.S. automakers and the suppliers want Congress to appropriate $3.75 billion needed to back $25 billion in U.S. loans approved in last year's energy bill and add $25 billion in new loans over subsequent years, according to people familiar with the strategy. The industry is also seeking fewer restrictions on how the funding is used, the people said.

GM and Ford lost $24.1 billion in the second quarter as consumers, battered by record gasoline prices, abandoned the trucks that provide most of U.S. companies' profit and embraced cars that benefit overseas competitors such as Honda Motor Co. U.S. auto sales may drop to 15-year lows this year and fall even more in 2009, analysts have said.

``Next year is going to be a make-or-break year in terms of survival,'' said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, which oversees $22 billion in assets, including GM and Ford bonds. ``Any help like these government loans would be a huge boost.''

Standard & Poor's said Aug. 19 that U.S. light-vehicle sales will fall to 14.2 million units this year from 16.1 million in 2007 and drop again to 14.1 million next year. The ratings company said there is a 20 percent chance that this year's sales will be as low as 13.6 million and 11.7 million next, presenting an ``overwhelming challenge'' for U.S.-based companies.

``Our plans, which require significant investments, are at risk because of limited access to capital,'' GM spokesman Greg Martin said, declining to comment on whether GM is seeking more than the original $25 billion. ``This program will open capital that is necessary to make sure our transformational plans continue at full speed and give us the best chance to succeed.''

Ford spokesman Mike Moran said the automaker had no comment on any funding beyond the $25 billion already approved.

Congress needs to appropriate about $3.75 billion in funding to cover the upfront cost of the government loans, according to a July 25 estimate in a letter to House and Senate leaders. The letter was sent by more than 40 members of Congress urging support on the issue.

To contact the reporter on this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net
Last Updated: August 22, 2008 14:01 EDT

Also of note: A tax break for Chrysler was buried in the Housing bill which was passed last month. See here.

[Siege]

Sooo, help a poor Eurohippie out here for a moment... At what point does it stop being a 'bailout' and does it become 'evil commie guv'ment subsidies'? Or is that just when it's poor people being bailed out instead of big businesses?

[Rogue 9]

You know, it seems to me that if U.S. taxpayers bail a company out when it loses loads of money, U.S. taxpayers should skim that company's future corporate profits until the bailout is paid back. This is especially irksome with the Fannie Mae and Freddie Mac deals; if they lose money on the market, we pay it, but if they make money, their investors get it. What the fuck is that?

[J]

This is especially irksome with the Fannie Mae and Freddie Mac deals; if they lose money on the market, we pay it, but if they make money, their investors get it. What the fuck is that?

It's Volleyball Capitalism. I've also heard it referred to as the "Bulgaria Model", though I'm not entirely sure of the origins of that phrase.

[Winston Blake]

You know, it seems to me that if U.S. taxpayers bail a company out when it loses loads of money, U.S. taxpayers should skim that company's future corporate profits until the bailout is paid back.

Isn't that what's happening? As far as I can see, this $50B is in loans. That is, they've got to pay it all back to the government with interest. That's got to come from their profits. Although if they can't make those payments, I don't see anything stopping them from getting another bailout, based on the same arguments that got them the first.

[Col. Crackpot]

Toyota and such aren't crashing and burning like the Detroit Three, but they're taking hits from the global contraction. The thing is, they were making profits well into the period where the Three were taking heavier and heavier losses.

The Detroit Three will be bailed out because the idea of not slavishly obeying the 'American Auto Industry' is insane, unless it's, you know, one of those evil companies that doesn't work out of Detroit.

Toyota's sales are in the toilet as they are heavily invested in selling large pick ups and SUV's to the North American Market. You're thinking Honda, who never bout into the Ginourmous SUV craze.

[SirNitram]

Toyota and such aren't crashing and burning like the Detroit Three, but they're taking hits from the global contraction. The thing is, they were making profits well into the period where the Three were taking heavier and heavier losses.

The Detroit Three will be bailed out because the idea of not slavishly obeying the 'American Auto Industry' is insane, unless it's, you know, one of those evil companies that doesn't work out of Detroit.

Toyota's sales are in the toilet as they are heavily invested in selling large pick ups and SUV's to the North American Market. You're thinking Honda, who never bout into the Ginourmous SUV craze.

Checking back, I am.

Where's the egg-on-face smiley?

[The Yosemite Bear]

well back from the 1980's

when the first amphibian crawled out of the slime
of the slime
we've been struggling with an unrelenting grime.
and we've been told that failure is an awful crime.
well it's been that way for a Melinium or two
'um or two
and now there seems to be a different point of view
if your a corperate Titanic, and your failure is gigantic
Down in congress theres a safety net for You.

Well I'm changing my name to Crystler
I am heading for that great recieving line
I'll tell some power broker, what they did for Iakocca
will be perfectly acceptable for me.
When my creditors are screaming for their due.
for their due
I'll tell them where to go.
where to go
they don't have to scream and holla
they will be paid to the last dollah,
from where the endless streams of money seem to flow.

Well I am changing my name to Crystler
I am heading for the great recieving line
when they hand a million grand out, I'll be standing with my
hand out, yes sir I'll get MINE!

[aerius]

The problem with the U.S. is its regulation of business is a one-way affair. When they fuck up, we give them money and loans to bail them out, and the stockholders in general, and the upper management in particular get to reap the awards. They should be forced to submit to somesort of government interference in exchange for money. As far as I'm concerned, we're buying something, not giving away charity.

No kidding, most of the companies which have been getting government bailouts are still handing out shareholder dividends. The taxpayer dollars are going straight to the shareholders, and of course all the execs hold millions of shares. That's fucking bullshit. There should be a law which says that all dividends go to zero until the government loans are repaid in full. GM at least has no dividend right now, but Ford still has one.

[SpacedTeddyBear]

Can the government take control of a public company if it goes default on it's loans? That'd be one of my stipulations along with some others mentioned already.

[Pelranius]

You could, but expect both the left and right to make an enormous stink about it (the lolberterians on the right and the unions on the left).

[Fingolfin_Noldor]

It's funny how these companies go libertarian in good times, then suddenly go socialist when the bad times come.

Ah... it's good to be a flip-flopper.

[RedImperator]

You know, it seems to me that if U.S. taxpayers bail a company out when it loses loads of money, U.S. taxpayers should skim that company's future corporate profits until the bailout is paid back. This is especially irksome with the Fannie Mae and Freddie Mac deals; if they lose money on the market, we pay it, but if they make money, their investors get it. What the fuck is that?

Well, from what I'm hearing, if Fannie and Freddie go bust, they're going to get de facto nationalized and the shareholders will be wiped out. Upper management would get shitcanned, too. Which would be a wonderful silver lining, albeit one around a huge, black cloud of shit.

Maybe that should be a loan stipulation for the carmakers. "Default, motherfucker, and you're US Government property, do not pass Go, do not collect your severance package."