Auto Bailout Passed

Senior congressional officials say Majority Democrats and the White House have agreed a deal to get $14bn in emergency loans to US automakers with a number of Republicans grumbling loudly in the corner. The money could be dispersed in coming days to the struggling autos – GM, Ford and Chrysler – as they try to stay afloat.

On that subject, GMAC, the financial arm of General Motors, has extended the deadline on its capital-raising plan as it tries to shift to a bank holding company structure and gain access to federal bailout money. The unit has thus far failed to raise enough to qualify as a bank holding company.

Democrats Seal Auto Stimulus

Congressional Democrats were last night working to finalise the details of a rush plan to get $15bn in emerging financing to the Detroit Three, looking to work through the restrictions likely to be placed on the plan by the government. The proposals would include the appointment, by Bush, of a ‘car tzar’ to oversee the restructuring of the companies as they work to stay alive.

The deal could apparently see the US government take substantial equity stakes in the company and the auto industry and therefore, a major role in the restructuring and evolution of the failing domestic sector.

It’s against what I think should happen (bankruptcy followed by government help during the administration process) but at least there seems to be an acknowledgement that the automakers cannot simply have the money and carry on as usual.

GM To Make Cuts if Bailout Granted

General Motors admitted that major cost cutting measures will have to be made should it be given the bailout money from the Federal Government which will ensure its short-term survival. To provide long-term security, the group will have to shrink almost every aspect of its business. The news came as the Detroit Three came in front of Congress to ask for an enlarged bailout of $34bn.

Romney on Auto Bailout

I missed this in The New York Times over the weekend but it’s an op-ed piece from former Republican presidential candidate Mitt Romney which provides a really well argued overview as to why the auto industry in the US should not receive bailout money.

I’m inclined to agree with him on his points in essence. Essentially, Romney argues that saving the big three will doom them as they will never learn from the mistakes made, a central component to their eventual evolution and survival. By not bailing out the industry, the US would send a clear signal that they need to provide better cars and assimilate into the modern automaking industry rather than relying on the government to pay for years of neglect and laurel-resting.

In principal he’s right. But he’s saying the words in an America which has seen the crash of Lehman Brothers, the near-demise of AIG and the essential evaporation of its investment banking industry. Allowing these automakers to fail at this time in history just doesn’t seem viable given that, should they indeed fail and not manage to evolve into modern entities which can survive the downturn, the job losses would be so enormous and wide-ranging that any stimulus package from the Obama administration would be unlikely to provide any stability. It’s a tough question which has an impossible answer and we’ll see what that is in coming weeks.

GM Considering Bankruptcy Option

A while back Sam highlighted an article by Justin Fix that made the case for GM to declare bankruptcy. As time has ticked by and the Detroit Three gear up for their post-Thanksgiving viability presentation to Congress for the controversial $25bn auto bailout, news has now emerged that General Motors are considering a raft of options, the key one here being bankruptcy. 

[Source – Reuters]

Detroit Three Given New Chance

The big three auto industry players – GM, Chrysler and Ford – have been given a second chance to win over Congress into awarding the $25bn they say they need to revitalise their finances.

House Speaker Nancy Pelosi has told the big three to come back with plans on exactly how the bailout money will aid general corporate purposes and provide stability for the automakers. Should they be able to prove that the money will make them healthier companies, it’s likely to come their way. The saga continues…

GMAC Applies for Bank Status; GM Shares Depression Levels

GMAC Financial Services, the financing arm of General Motors, has applied to become a bank holding company which would give the group access to government funding under the already-announced initiatives from the US Treasury and the Fed.

The move echoes the bank holding company transferrals made by Goldman Sachs and Morgan Stanley earlier this year, meaning they could get access to government funding. It does also mean however that they will come under far stricter regulatory scrutiny.

The move by GMAC comes on the same day that GM shares dropped to Depression-era lows and the day after chief of the Detroit Three failed to come away from Washington with any agreement for rescue funding.

The move could at least provide some cash for GM to deal with any losses which could come from its financing arm which have been steep to say the least, as detailed in the USA Today article linked to first in this piece.

Asian Autos Want Bailout

The side arguing for the bailout of the Detroit Three has just enlarged with the majors from Asia – Honda, Hyundai, Toyota and Nissan – coming out in favour of a bailout for the big three.

The move has surprised some observers as the failure of one of the majors in the US would, in the long-term bring dominance and expansion opportunities to carmakers from overseas, especially if they focus on building ‘green’ vehicles.

However, despite the long-term positives, the short-term negatives are too high to risk and so Republicans are now likely standing against the entire auto industry rather than just Michigan and the Democrats.

Auto Execs Taking Bailout Hopes to Congress

Executives from the Detroit Three were due to appear in front of Congress today to try and make the case for the Democrats proposed $25bn bailout for the industry, currently opposed by Republicans. Ford executive Alan Mulally has warned that there could be major consequences for the US economy should the companies not receive the bailout capital.

This one is going to be a real battle for Obama.

Pressure Piled on for Auto Bail Out

Ron Gettelfinger, the president of the Auto Workers Union, has put more pressure on the US government to provide bailout capital to the Big Three auto makers, warning that should the group fall into bankruptcy, they may never again be solvent.

I’ve written extensively about the auto bailout so I won’t go on here but it looks increasingly like this will be the first fight of Obama’s presidency, if the Big Three don’t go under before January.

Additionally, Michael Levine, writing for The Wall Street Journal, argues why bankruptcy would be the best thing for General Motors.

Paulson, Bernanke To Update on Bailout

Treasury Secretary Hank Paulson and Federal Reserve chairman Ben Bernanke are to update senior Democrats, including House of Representatives Speaker Nancy Pelosi, regarding how the $700bn market bailout plan is working.

The bailout has been the subject of speculation in the past week following the move to open it beyond the banking and money markets to insurance giant AIG and further rumours that it could be used to bail out the Detroit Three.

Defending The Auto Industry – Newsweek

Daniel Gross argues in Newsweek that the US needs to seriously consider saving the auto industry. Gross is a proponent of free market values and the advantages of allowing failure in capitalist economies. He makes a number of compelling points that should be noted, particularly noting that, like the already bailed out AIG, General Motors has a certain systemic value in that should it collapse, the network of suppliers, manufacturers and technology firms that rely on the company, not to mention its 300,000-plus employees, would be hammered into the ground.

We’ve written about the auto bailout a number of times and I’m starting to come around to the idea. I do believe that a free market should allow companies to fail but, partly due to regulatory missteps in allowing certain companies to become too big, this just isn’t a viable view in the current marketplace. The auto industry, just like AIG, is perhaps too big to allow failure and now the government should step in to provide capital and restore confidence.

However, should this happen, the burden must be placed on authorities to prevent companies like AIG and GM from forming to such important organisations which are too big to fail. Further, the auto industry should be given extra oversight to make sure that they evolve in the US and start to provide the market with environmentally friendly vehicles that are now in demand. That will not only increase the corporate responsibility of the industry, but should save the companies in the long-run and teach a lesson on making sure they grow in line with the global automotive industry instead of relying on US appetite for homegrown cars of any sort.

Related to this however, it is looking increasingly unlikely that such a bailout will emerge for autos. Democrats believe the opposition from the Republican party will be insurmountable at the lame-duck session next week. Should Democrats be prevented from providing an aggressive stimulus package to markets, it’s likely that one of the Big Three will collapse before Obama comes to power. This, like Lehman, could have a major impact on global markets and, to put it plainly, we’d all be fucked. Watch this space.

Paulson Shifting Bailout Aims

Treasury Secretary Hank Paulson has announced plans to realign the aims of the government’s Troubled Asset Relief Program by moving away from buying toxic assets and rather looking to inject billions in financial institutions outside of the banking market.

This comes two days after the government extended and enlarged the loan it provided to American International Group, the ailing insurance giant. The Treasury purchased $40bn in preferred shares in the company and bought just over $50bn in toxic mortgage-backed securities guaranteed by AIG.

The move will give hope to automakers who are awaiting a possible bail out plan under Obama which would save hundreds of thousands of jobs. This indication from Paulson today, plus Monday’s AIG move, provides evidence that authorities might well consider bailing out the car manufacturers too.

GM Should Not Be Saved

Tracy Corrigan has written a persuasive argument for why auto industry players in the US should not be saved. She’s absolutely right on the point that auto concerns are not like banks and should not be treated as such and expresses brief annoyance over the rescue packages being extended to AIG, a systemically important insurance group.

The key point she makes however is that auto makers are in dire straights because people don’t want to buy cars anymore. What with the onset of the financial crisis, buying a new car is no longer at the top of the vast majority of agendas for the common folk. Add this to the growing anxiety felt over climate change and our impact on the environment, especially from those little car demons, and you’ve got a recipe for consumer disaster for auto industry players.

The main argument for autos on why they should be saved is split between the number of jobs in the industry and the historical importance of companies like General Motors and Ford. But Corrigan is right, have they really made a case for being systemically important enough for the US to further bend its ‘free market’ ethos and save them too?

Obama thinks so and, given that I’m in the first flushes of full-blown man-crush right now on the dude, I’m disarmingly pushed to agree. But AIG and GM are different kettles of fish. The banking market was too important to let it die so we’ll leave that to one side but AIG, particularly given the reach of its power globally and the systemic infiltration of its financial products insurance business, it really was too big to fail. In hindsight, so was Lehman Brothers and the latter could prove a good argument for autos should any doubt remain for officials over bailing them out; just remind them of the collapsing markets post Lehman’s demise.

I’m not in the position to make the judgement call but, from the outside, it seems like the auto industry in the US is just going through a period of tough evolution and will have to correct and adapt its ways to counter the crash in the number of cars sold and try to find its place in the modern marketplace. Otherwise, US-made cars could well become a thing of the past.

Bush Bargaining

The potential extension of the TARP to cover the auto industry is becoming a key issues in the US right now and it breaks down thusly. Bush is against it. Obama is for it. Bush wants a free-trade agreement with Colombia and wants this to happen to let the financing get to GM, Ford and Chrysler.

So George W Bush, certified worst president ever and lame duck awaiting his turn to be culled, is trying to bargain with the bulldozer that is Barack Obama. Hmm…

Full story here.

Pelosi and Reid Pushing for Auto Bail-Out

Nancy Pelosi and Harry Reid, respectively House Speaker and Senate Majority Leader, have petitioned Treasury Secretary Hank Paulson to extend the Troubled Asset Relief Program to cover the Big Three automakers and provide them with rescue financing.

Whether is a good idea or not, it seems like this needs to happen and surely it can’t be too long before yet more industries come calling. It will also generate some of the press we’ve had here in the wake of the Lloyds TSB-HBOS merger in that, should the financing back a merger of GM and Chrysler, competition issues will arise.

Full story, from The Wall Street Journal, here.

Obama & McCain Support Auto Industry Funding

In a follow up to yesterday’s comment on General Motors, both Barack Obama and John McCain have pledged new support for the auto industry should either win office. Both are backing the $25bn bail out plan for domestic auto manufacturers, specifically regarding government backing for the possible merger of GM and Chrysler.

Full story from MSNBC here.

General Motors Needs Bankruptcy

Excellent piece here from Justin Fox arguing  the benefits of bankruptcy in a capitalist system, the reasons this should be allowed outside of highly leveraged financial institutions, and why General Motors needs to face it.

He’s completely right. You can’t have a free-market capitalist society without letting some groups fail and, painful though it will be for a major, historic American institution to go, it’s necessary.

Full article right here.