Bail This!

bail this

In George Orwell's Animal Farm, the farmyard creatures create seven commandments to ensure harmony and protect against human cruelty. The seventh commandment, "all animals are equal," eventually gets a rider: "but some animals are more equal than others." For most, it's satire. For others, it's a way of life. To wit: federal politicians, whose interest in special interests far outweighs their concern for the "average" voter– if only because taxpayers are too busy earning money to pay their taxes to notice how the cash is being wasted. Except when they're not. The plan to bailout Detroit's automakers looks set to be one of those times.

Today's Wall Street Journal gives the public its first glimpse of Detroit's planned assault on federal funds. Surprisingly, ALL THREE domestic automakers are banding together to hit-up Uncle Sam for a $25b loan. What's more, the automakers want the money at a 4.5 percent interest rate. AND they're seeking a proviso that the feds can defer ANY interest payments for five years. You know; if the automakers can lobby elected representatives hard enough.

This is not what most analysts expected– even the ones who didn't expect it (if you know what I mean).

Surprisingly, The Big 2.8 are asking for cash money. A loan is a far less politically palatable "request" than federal loan guarantees. There can only be one reason why Detroit went for the more dangerous, direct approach: the banks won't touch them even WITH federal backing. It's a sure indication that the money men have finally (and correctly) reached the conclusion that Detroit's current business model is well and truly dysfunctional. Dead, even. They are not going to throw good money after bad.

Which is, to Motown's way of thinking, beside the point. After all, the $25b loan will be spun as an investment in new technology, not a bailout per se. It's simply a way to help us "modernize" our old factories to build THE CAR OF THE FUTURE. In other words, if you really want those EVs, you gotta pay. Us.

But why so little money?

Seriously; $25b is not enough cash to sustain GM for a couple of years– never mind GM, Ford AND Chrysler. To put that number in perspective, when Ford doubled-down and mortgaged the farm (including their logo) in 2006, they raised $23b. GM's contribution to the United Auto Workers health care VEBA fund is (i.e. was) $29.9b. A $25b federal loan may be The Mother of All Band-Aids, but it's nowhere near enough cash for The Big 2.8 to reinvent themselves.

It is, however, a "doable" sum if you're dressing-up a bailout as an "investment." No doubt supporters of the domestically-owned automobile industry are already comparing the $25b figure to the cost of the war in Iraq, or the space shuttle, or tax breaks given to oil companies, or some such thing.

And anyway, it's a prelude to a kiss: the REAL bailout (in for $25b, in for another $25b). Truth is, it would extremely difficult for The Big 2.8 to ask for a "realistic" loan– or loan guarantee– to turn all their asses around. That number would be near-as-dammit a trillion dollars.

Of course, like all trillion dollar– or, I should say $25b federal expenditures, the vast majority of the money would disappear down a rathole, never to be seen again. American-owned automakers are not a cash-starved start-up looking for enough money to bring PC products to market. They're a motley crew of failed businessmen and women who've demonstrated an abject and ongoing inability to develop competitive products. Giving them more money to piss away would not solve anything.

The operative word here is "would." This is not a done deal. For one thing, as the failing financial industry hoovers-up federal funds, there is the very real prospect of "bailout (yes bailout) fatigue." For another, painting Motown as a "good investment" will be an extremely tough sell. The public currently sees The D2.8 as EV-killing gluttons who feasted on SUV profits when they should have been building small, fuel-efficient cars. The hundreds of millions of dollars pocketed by D2.8 executives will do them no favors in this regard.

The real deal killer: Detroit's irrelevance. The gas – electric hybrid Prius already exists. Fuel efficient small cars already exist (some of them sold by Detroit). As far as the general public is concerned, even the plug-in Volt is coming along nicely– without federal funds. The public can easily see this $25b "green loan" for what it is: an attempt to help Detroit do what should have been doing all along. A reward for incompetence.

Giving The Big 2.8 federal tax money to play with is also a bad idea for Detroit. Even if the operation is a success, without Chapter 11 reorganization, the patient will die.

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  • GS650G GS650G on Aug 26, 2008

    Atlas is clearly shrugging. Ayn Rand is being proved right that is for sure.

  • Morea Morea on Aug 26, 2008
    Phil Ressler: The Feds have to recruit and appoint new boards... Aye, there's the rub. Who says they can do a credible job of this? Does anyone believe the process won't be filled with cronyism and political favoritism? Why not just go whole hog and have the Federal government buy and run GM, afterall $6 billion will take the whole thing. It could be part of the Department of Transportation.

  • Kip65688146 "Everyone is worried about the public stations, but why don't we focus on the low hanging fruit: home charging? "BAM!!!!!!!!!!!!!!!!!!.............This guy gets it!I'll add current battery tech means EV's in their current state are not replacements for ICE Cars & trucks but make a good argument as 2rd or 3rd vehicles in mulit-car households which is hardly a niche market.
  • 2ACL Looking forward to the next part. I didn't like the first generation, but the second-generation was on my radar; I like the low-key, yet elegant styling, and the automotive media raved that the road-handling was significantly cleaned up from its nautical predecessor's. I'd still consider one if a replacement event unexpectedly befell my TL, but developments since have made that something of a long shot.
  • Deanst “Switching to EVs will be end of the Dodge brand. Nobody wants EVs.”Tesla, a brand which only sells EVs, is the number 1 luxury vehicle seller in America. But do go on…….
  • Randall Tefft Sundeen Oldsmobile was ALWAYS my favorite GM marque ! I remember as a kid you couldn't walk down the street without tripping on one! In 1977 and 1984 respectively olds sold. Million units, GM's second biggest seller as well as being the test brand for new options (Why take a risk with Cadillac?) The first CLUTCHLESS MANUAL , the first ELECTRIC POWER WINDOWS the first AUTOMATIC not to mention in 1974 the first airbag. Iam fortunate enough to live in a warm climate where old cars are plentiful sadly very few Oldsmobiles. Many features we take for granted were developed by this special brand
  • Conundrum Some parts of the US are in a bad way due to drought and climate change as well, but Posky manages to avoid mentioning Lake Meade, Musk going bananas over no water for his Nevada gigafactory, a few wildfires and floods here and there. No let's have a chuckle over China's experience instead, and chuck in the name Toyota in the headline as a draw. Musk is demanding China ensures his Shanghai factory gets plent 'o power, because that's what spoilt billionaires do. Me, me, me first. Doesn't work when everyone's gasping for breath.Kind of seems to me that avoiding the obvious is the American way. Let's burn some more coal and make things much better! Yeah!Meanwhile, apparently whoever runs this website on a technical basis needs to go back to training school.meanwhileThe way this site "operates", which it mainly doesn't, is a complete farce!Let's have an opinionated article on that.