Bailout Watch 422: Ca Marche

by Edward Niedermeyer

Published: February 28th, 2009

The “original” bailout, also known as “section 136 loans,” still haven’t been disbursed yet, and as the New York Times reports, folks arre getting antsy about it. Politicians are “breaking down the door” of the Department of Energy, trying to get the funds shoveled out to a less than entirely deserving crowd of “energy efficient auto makers.” Like GM (requesting $8b for the Volt), Chrysler ($5b), Tesla ($350m) and some guys who convert Saturn Skys into EVs ($20m). Sadly not everyone involved sees the urgent need to hand out tax money to EV sportscar builders and dead automakers walking. Lachlan Seward, who oversees the loan program, tells the NYT “we are trying to do this in a responsible way that reflects prudent credit policy and taxpayer protections.” Like that matters.

And while the DOE is duing its dilligence on 136 loans, the line outside the Treasury department keeps getting longer and longer. Bloomberg reports that the Treasury is meeting with representatives of supplier firms and is considering acting on their $18.5b bailout request.

Recent bad news from supplier giants Lear and Visteon are doubtless keeping the supplier issue at a rolling boil. After all, keeping the OEMs out of bankruptcy was supposed to prevent cascading bankruptcies among the suppliers, right? We can’t have that happening now that we’ve already bailed out the OEMs, so this is starting to look like a sure thing.

Also reading Redbook in the Treasury waiting room are GM’s bondholders. The WSJ reports that they are waiting for an audience with the Presidential Task Force On Autos in hopes of making some headway on GM’s debt for equity swap.

Edward Niedermeyer

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4 comments

Segfault on Feb 28, 2009

Why does Tesla need a bailout? Surely they're not too big to fail?

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John Horner on Mar 01, 2009
“... we are trying to do this in a responsible way that reflects prudent credit policy and taxpayer protections.” It is kind of weird when government subsidy adminstrators try to pretend they are hard nosed bankers (speaking of which, what happened to the bankers ... too many drug and alcohol parties?). If traditional lending could get the job done, the government wouldn't be involved in the first place. Imagine DARPA reviewing the funding proposals for ARPANET (the Internet's predecessor) and demanding to know when it would be profitable. Imagine the US military trying to figure out how to collect user fees on every GPS device in order to make a profit on the satellites. Yes indeed folks, the Internet and GPS technology were both brought to you by the government. Heck, the transistor and Unix would have remained under the thumb of Bell Labs had not the government forced Bell to license the patents broadly and cheaply during Bell's days as a regulated monopoly.

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Tesla deathwatcher on Mar 01, 2009

John Horner, I don't think giving money to car companies is anything like the government support of the development of the Internet, GPS, the transistor, or UNIX. The government provided small amounts of research money. Period. In none of those cases did the government give money to a company to pay its operating expenses. And in the case of the Internet and UNIX (I don't know much about GPS and the transistor), private investment brought the products to market, not government money. The government still funds research, and more money there may help. But when the government steps in like a venture or private equity firm and just gives away money as loans, that's a big departure from past practice. I cannot see any chance that will work.

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Psarhjinian on Mar 01, 2009
And in the case of the Internet and UNIX (I don’t know much about GPS and the transistor), private investment brought the products to market, not government money. John is right, though. The Internet really did start life as a cooperative enterprise between goverment, the military and academia, and it really was better for it because although it wasn't monetized, it benefited from a broad base of adoption and standardization at a time when private industry grudgingly offered stunted, balkanized services like Delphi, CompuServe or GEnie. The Internet is eponymous only because the government footed the initial bills. If you want to see what a privately-developed Internet looks like, one that has venture capitalists and shareholders' best interests at heart, look to the awful gouging and interoperability hell that happens among the mobile carriers. Were the Internet the brainchild of, say, Verizon, it would be nickel-and-dimed to death. It still might, if those pushing to destroy network neutrality have their way. The government is very good (or at least better than) private industry when it comes to developing things that require more than a quarter or two to achieve decent ROI, especially in this magpie investment climate. Green technology fits this description nicely. So does healthcare.

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