By on May 2, 2009

Some Detroiters honest-to-God believe that Chrysler and GM will repay the money “loaned” to them by the federal government. That’s a leap of faith that would have taken Evil Knievel across the Grand Canyon (proper) and on to Maui. But you know what? In all this excitement, I’ve lost track of how many billions we’re actually talking about. I reckon the government’s to-date contribution towards keeping the zombies alive lies just north of $37 billion. That doesn’t include the duo’s share of the $25 billion Department of Energy retooling loans (should they live that long). Or the $5 billion blessed upon GMAC. And the $1.5 billion loaned to the now-defunct Chrysler Financial. Or Canada’s contribution to the kerfuffle. Or the cost of running a 25-member Presidential Task Force on Automobiles. And the phalanx of lawyers employed by same. And the community organizer assigned to help out affected communities with, wait for it, federal funds. And now . . . the rest.

No less a personage than the President has promised to provide “fresh” funding for GMAC to absorb Chrysler Financial. I’m thinking that’ll be $5 to $10 billion, for a start. And we’ve heard nothing of the cost (or logistics) of the federal warranty program backing Chrysler buyers. And here’s something interesting I found on CNNMoney:

The U.S. government’s $700 billion bailout fund can be used to purchase debt and equity from domestic auto makers, U.S. Treasury Secretary Timothy Geithner told congressional leaders this week.

In letters dated Wednesday to the chairmen of several key committees, Geithner said he and U.S. Federal Reserve Chairman Ben Bernanke have determined that the purchase of auto makers’ debt is “necessary to promote financial market stability.”

Moreover, Geithner said he and Bernanke have concluded the debt qualifies as a “troubled asset,” making it eligible for purchase through the bailout fund. The fund was originally created as a way to cleanse bank balance sheets of risky mortgage-related assets that have constrained their lending ability.

Geithner said certain companies involved in the auto manufacturing sector already have asked the Treasury Dept. purchase debt obligations or equity. However, he declined to provide names or further details.

Question: at what point do even Detroit’s myopic cheerleaders say “basta”? I have a feeling we’re going to find out. Later.

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28 Comments on “Bailout Watch 518: How Much is This Boondoggle Going to Cost Me?...”


  • avatar
    Detroit Todd

    Regardling the lawyers, they are indeed expensive. That’s one of the reasons why a Herculean effort was put into restructuring the mess that is Chrysler out of court.

    So, when Oppenheimer Funds and the other recalcitrant bonddholers who held out and caused the bankruptcy filing fare no better in court than they would have had they took the pre-filing deal, they should be made to pay bankruptcy court attorneys’ fees for all parties.

    Many state courts have this. If you refuse what you were awarded in arbitration/mediation and pursue your case to trial, and do not achieve a settlement larger than what you were offered at arbitration/mediation, you are then responsibile for all parties attorneys fees.

    Sounds fair to me.

  • avatar
    Lokkii

    But you know what? In all this excitement, I’ve lost track of how many billions we’re actually talking about.

    Well taxpayers, do ya feel lucky today? Do ya punks?

  • avatar
    Ingvar

    It will end up in the nice figure of no less than one hundred billion dollars. But less than two hundred. A hundred billion is a nice figure, round and sweet.

  • avatar
    PeteMoran

    During hearings, someone speculated closer to $125b. Seems to be on track so far….

  • avatar
    bluecon

    Chump change compared to what they gave their buddies on Wall Street.

    The American people have been duped and the country is not going to be the same for a long time.

  • avatar
    97escort

    Evil Knievel never intended to make is across the Grand Canyon. It was a money making publicity stunt that worked. The plan was to collect admission and rights money. Then when he jumped and of course failed, he had a back up plan to land safely.

    We are now experiencing what happens with bankruptcy of a major auto maker. It turns out it is pretty messy and expensive. I have a hard time believing that Chrysler will emerge from it in 60 to 90 days.

    That’s the sales pitch. I think it will be bogged down in bankruptcy court much longer. A lot of people will be disappointed and it will turn out that bankruptcy didn’t help much. Chrysler’s jump (push) into bankruptcy will not end as well as Evil Knievel’s famous scam.

    Now it’s GM’s turn.

  • avatar
    volvo

    I don’t really know how much government support for unsustainable companies will eventually cost but how about this for a modest proposal.

    Give 50,000 UAW workers $1,000,000 each in return for UAW agreeing to give up pension/health-care benefits and dissolves itself as a union (OK so we need to give 10 million each to the top 10 union leaders). Sell or give away US government holdings in GM and Chrysler.

    Total cost $50.01 billion. An added benefit is all of the resources saved (water, power, petrochemical materials and metals) when these failed companies stop making vehicles that people don’t seem to want.

  • avatar
    jurisb

    Robert, as long as the money is not real anyway, why bother how many gazillions Gm has evaporated.Wait a minute, will those dollars that taxpayers will have to return, will have to be real? Unfortunately yes.Anyways ,it is just peanuts compared to what US owes to other countries. If the whole stack of those 12 trillion dollars had to be put side by side using 1 dollar bills, it could cover the total area surface of that of 2 earths including all oceans, mountains, you name it.And if you managed to stack that debt in a pile, each bill on top of each other, it would be 28 thousand miles high.So , we actually could get to outer orbit, just climbing up our debt pile :))) This would save some money for NASA.I even didn`t mention social security liabilities that would allow us wrap up in dollar bills Mars, Earth ,moon and each asteroid in Kuiper belt.

  • avatar
    yankinwaoz

    Evil Knievel never intended to make is across the Grand Canyon. It was a money making publicity stunt that worked. The plan was to collect admission and rights money. Then when he jumped and of course failed, he had a back up plan to land safely.

    Wow… the analogy is mind blowing. I can’t help but think that Rick Wagonner must have borrowed Kenivel’s plan. Except in Rick’s case, he used a golden parachute.

  • avatar
    car_czar

    If these companies are making vehicles no one wants – why are they selling so many of them?

    GM has outsold every competitor in the US market this year. By more than a third. Why’s that you figure? Charity?

    Once the Big3 realize the cost savings being brought about by this rationalization, profits will come, the government will be paid back, and the hundreds of thousands of jobs of autoworkers and those that are supported by autoworkers will be saved, along with the economies of several states.

  • avatar
    BDB

    “If these companies are making vehicles no one wants – why are they selling so many of them? ”

    Incentives and fleet sales.

    Incentives stop helping at a certain point though. You couldn’t give me a new, loaded Dodge Caliber and I think most everyone on this board feels the same way.

  • avatar
    Pch101

    If these companies are making vehicles no one wants – why are they selling so many of them?

    (I posted this on another thread, so forgive me for the repetition.)

    There are 2,640 reasons. That’s the difference in dollars of the average incentive being paid by GM and what is being paid by Toyota.

    All of you need to look at the incentives. The domestic incentives are shooting through the roof, and Hyundai’s are almost as high as Ford’s. Averages for last month:

    Chrysler Group – $4,288
    General Motors – $4,063
    Ford (incl. Volvo) – $3,636
    Hyundai (Hyundai, Kia) – $3,591
    Industry Average – $3,031
    Nissan (Infiniti, Nissan) – $2,779
    Toyota (Lexus, Scion, Toyota) – $1,648
    Honda (Acura, Honda) – $1,439

    http://finance.yahoo.com/news/Edmundscom-Reports-True-Cost-bw-15103462.html?.v=1

    Honda and Toyota have increased their incentives, too, but they are still lower now than what the domestics pay out when times are good. Honda and Toyota are responding to these times by cutting production, moreso than incentives. Detroit is paying people to take the cars, as usual.

    Comparing all brands, in April Scion spent the least, $160 per vehicle sold, followed by Subaru at $884. At the other end of the spectrum, Cadillac spent the most, $5,675 per vehicle sold, followed by Infiniti at $5,504. Relative to their vehicle prices, Kia and Mercury spent the most, 20.9 percent and 16.2 percent of sticker price, respectively; while Scion spent 0.9 and Lexus spent 3.3 percent.

    To add to that, I’ve posted elsewhere data that shows that GM sells cars for far less, and all of you know anecdotally that domestics sell at a discount. The domestics can’t command the same prices as the transplants or imports. If they could, they’d be profitable.

  • avatar
    George B

    Wouldn’t it be less expensive for taxpayers to take over the Chrysler pension fund and then auction off the scraps? Hard to see how adding Fiat to the Chrysler product line makes to overall company successful. Would be nice to get additional small car choices in the US, but the small volume and profit margins probably don’t contribute much revenue.

    I believe that breaking up Chrysler and selling parts to relatively successful manufacturers would be a far superior plan to the current Fiatsco. Which would you rather buy, 1) a Ram pickup built in a plant managed by Nissan or 2) a Ram pickup built in a plant managed by Fiat, the UAW, and the federal government?

  • avatar
    car_czar

    People are not buying cars exclusively on price. Incentives influence volume but are not the only factor by far. Cars are emotional purchases.

    It’s amazing to me that people are so narrow minded that they can’t even believe anyone would actually prefer an American product. Even though some of these products have received awards and accolades from the automotive press and consumer publications.

    The domestic’s incentives will go down once capacity gets in line with volume. There won’t be a need to move as much product to be profitable.

    The bankruptcies are forcing rationalization of product lines around the best vehicles, bringing down structural costs dramatically, and improving the dealer network.

  • avatar
    Pch101

    The domestic’s incentives will go down once capacity gets in line with volume.

    You have no reason to be so confident of that. Domestic incentives have consistently been at least $2,000-3,000 higher those of Honda and Toyota for years.

    I’m not seeing much reason for that to change anytime soon. If the domestics try to charge more, they’ll sell a lot fewer cars. It is going to take years of good products, better service and improved reputations before the domestics can even hope to close the gap.

  • avatar
    Lokkii

    Evil Knievel never intended to make is across the Grand Canyon.

    No, and he never got to pretend to try.

    He ended up pretending to try on the Snake River Canyon in Idaho.

    He’s interesting reading, though….

    http://en.wikipedia.org/wiki/Evel_Knievel

  • avatar
    volvo

    Let me clarify part of my statement

    I should have said “making vehicles that people don’t seem to want to spend their own money on.”

    Strip out fleet and government sales and I imagine the numbers for GM and Chrysler sink considerably.

    Another poster said “It’s amazing to me that people are so narrow minded that they can’t even believe anyone would actually prefer an American product.”

    I’m so narrow minded that it also amazes me that some people prefer rayon clothing, high fructose corn syrup and lite beer.

  • avatar
    TR3GUY

    Chump change compared to what they gave their buddies on Wall Street.

    YUP!

    So Robert you thought these guys should go BK; they did.

  • avatar
    TR3GUY

    Pretty much all the crap that’s happening with spending is due to years or bad policy. Starting with RR (though he worked with O’Neill and raised user fees) through Bush, Clinton and Bush.

    A sagging infrastructure, out of control, credit and greed and “free trade.”

    The big 3 didn’t listen, health care is out of control so the system finally fell apart.

    Remember pay me now or pay my later? Oil filter ad I think. We wanted low taxes. Since people need someone to blame it’s the unions. Rather than saying they have it too good with health insurance why not say we should all have health insurance. I don’t want to compete with workers chained to their machines in China. Thanks Bill for that!

    Yesterday 12 Democrats voting against the leadership sided with the American banking industry to kill mortgage renegociation in BK cases. Something you can already do on a second house. So when Trump went BK he got a judge to lower his debt and payments on his casino.

    I have an 06 Miata but the roads in the Seattle area are so crappy a 45 minute ride to work makes me feel beat up — but at least I have $45 car tabs.

  • avatar
    car_czar

    “I’m so narrow minded that it also amazes me that some people prefer rayon clothing, high fructose corn syrup and lite beer.”

    Yeah, and those things sell billions also…

  • avatar
    carlos.negros

    I think the money spent on the auto industry is a valid response to the situation. And, evidently, so do the vast majority of the American people who agree with the President’s handling of the economy. Far more people feel the country is on the right track than during the Bushed regime. Yes, there are various teabaggers out there who only see the cup as half full; but a large component of economic recovery is psychological. Think of the money spent as a way to keep people optimistic and keep them buying things.

  • avatar
    Jeff Puthuff

    I think the money spent on the auto industry is a valid response to the situation.

    Industry? Nissan, Honda, VW, Ford, et al. would like to know where are their handouts?

  • avatar
    CamaroKid

    Unlike the bonds held by Cliff and Patricia St. Pierre, on the “Poor Bond Holders” thread, that we thought were secured, that suddenly became unsecured; the Government debt is almost all secured debt, and now we think that the Government debt is not secured… Up is Down… Black is White…

    Yes the GMAC money is gone as will be the cost to process the Chapter 11/7/whatever… but the lion’s share of the debt is secured debt and will be paid in full (first to the trough too BTW) in the event of a BK.

  • avatar
    davey49

    They won’t give the money back. The don’t have to.
    The government is saving money by doing this by not having to shell out welfare, SSI, medicaid and unemployment insurance for years and years for everyone who is now not losing their jobs because some semblance of the American auto industry is staying in tact.

  • avatar
    Happy_Endings

    GM is going to need all the money they can get for the foreseeable future, so don’t expect them to drop any of the incentives any time soon. In fact, they’re likely to increase so people aren’t as afraid to buys cars from a bankrupt care maker.

    Why does GM keep offering these incentives and basically have some sort of gimmick sale every quarter, if not every month? Because they know it’s the best way to move metal. Americans are now conditioned to simply wait for a sale from one of the dometics and it’s going to take a long time before they stop thinking that way. To be profitable, GM will need to stop offering the incentives. The problem is that they can’t start that now since they need money. And the longer they continue to offer the incentives means it will only be longer before the habit is kicked.

  • avatar
    PeteMoran

    @ Happy_Endings

    they know it’s the best way to move metal

    I can understand why you might think sales and incentives might work, but GM/Chrysler would be much better off to be honest about their product and price it appropriately.

    Study after marketing study has shown that publishing your price at $30,000 (for example) and then “discounting” it constantly to $25,000 builds a distrust. Retailers that are constantly having “sales” events correlate almost exactly with “least trusted”.

    There is a secondary effect as well, that the proposed transaction becomes more about The Deal than the product strength with respect to the competition.

    If you lead with your price as the selling point, then you can expect price conscious-only consumption.

    Ford’s Mulally put a stop to it (almost, well, trying to…slowly). I think his words were “less about The Deal, more about the product”.

    I think it’s fundamentally why bailing GM/Chrysler will fail almost regardless of any restructuring.

  • avatar
    Happy_Endings

    I can understand why you might think sales and incentives might work, but GM/Chrysler would be much better off to be honest about their product and price it appropriately.

    I didn’t mean to say it was the best way, but rather their best way. They couldn’t afford the lost sales and money at the time and they still can’t. So the best way to move metal, really their only option, was to offer huge incentives.

    I remember 2-3 years ago GM swore off incentives and tried to price their cars at a price that was realistic. It didn’t last long because they lost sales. They would need a strong leader, like Mulally, to incorporate a long term strategy based on product. But GM can’t even think about that strategy now. They’ll soon be a bankrupt car company. People are going to be concerned about buying from a bankrupt car company. This is on top of the fact that Americans are conditioned to wait for GM to offer a sale at some point, which GM is only too happy to oblige.

  • avatar
    Pch101

    I didn’t mean to say it was the best way, but rather their best way. They couldn’t afford the lost sales and money at the time and they still can’t. So the best way to move metal, really their only option, was to offer huge incentives.

    This gets to the heart of the problem. These price discounts have become the norm; they’re now expected.

    It will take many years of superior products, improved brand equity and better inventory management before the domestics can hope to maintain the current sales volume with higher prices. It can’t happen overnight.

    They have two basic options: Radically cut production and end the discounting, with the understanding that higher prices will lose a lot of sales, or; keep building a lot of stuff, discount the hell out of a lot of it, and hope that they can build their reputations enough in the meantime that they can slowly increase their prices and close the gap.

    Hyundai is basically taking the latter approach, as is Ford. With the task force slashing and burning brands, GM and especially Chrysler may fall in between these two approaches.

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