Detroit Pulls Up to the Cash Window
Another day, another bailout.
After federal government bailouts of Bear Stearns, Fannie Mae and Freddie Mac, domestic automakers are coming to town, hat in hand, looking for $50 billion in cold, hard taxpayer cash.
And they want it sooner rather than later.
With Ford, General Motors and Chrysler racking up billions of dollars in losses this year as their gas-guzzling SUVs and trucks languish on dealer lots, their credit ratings have sunk just when they need to raise tens of billions to retool their plants for more fuel-efficient vehicles.
Congress already authorized $25 billion in low-interest loans last year as part of the energy package setting a 35 mpg fuel standard, but the automakers want those loans funded now and another $25 billion in loans in future years to avoid borrowing money at double-digit interest rates in credit markets that have grown increasingly tight this year.
When that bill was passed, I dont think anybody expected the rapid increase in gas prices, and I dont think anybody expected the capital markets would be as challenged as they are now, said Bruce Andrews, a lobbyist for Ford. The market is broken. Everybody recognizes it.
Andrews said the loans would also enable a faster switch to higher mileage vehicles.
The more access to low-cost capital we have, the quicker the transition takes place, he said.
There is a bipartisan push for the cash, with Michigan Members of Congress reaching out to the White House and leadership from both parties in both chambers, and presidential candidates Sens. Barack Obama (D-Ill.) and John McCain (R-Ariz.) on board with at least funding the first $25 billion in low-interest loans.
Nate Bailey, spokesman for Rep. Joe Knollenberg (R-Mich.), said the direct loans are necessary to give the auto companies breathing room until credit markets and the economy improve.
They have to borrow at rates of 15 to 20 percent and thats just not sustainable, Bailey said. They cant get access to the liquid cash that they need.
And if the companies were to eventually go bankrupt, the ramifications would be huge and potentially far more costly than the loans, he said. No one wants to see that happen. It would be messy, it would be expensive, it would mean the loss of a lot more jobs throughout the economy. You cant risk having that.
If Congress bails out Detroit, it would be an echo from 1979, when the federal government provided loan guarantees that kept Chrysler afloat.
Given the importance of Michigan in the presidential election, it would be politically hard not to bail out the Big Three, but how it will get done in the next three weeks is unclear as backers search for the best vehicle to carry it. It could end up as part of a compromise energy package, tacked onto a stimulus package or added to the continuing resolution keeping the government operating after Sept. 30, or even pass on its own.
Or it could wind up as roadkill if the session devolves into a partisan meltdown.