Big Three bailout may not help sales
Even if the Big Three were to be bailed out, it doesn't mean that customers will come running. Janet Babin reports the issues surrounding auto companies with questionable futures and how the government could help.
(Left to Right) Ford Motor Company CEO Alan Mulally, Chrysler CEO Robert Nardelli and GM CEO G. Richard Wagoner, Jr. testify during a Senate Banking, Housing and Urban Affairs Committee hearing on Capitol Hill -- November 18, 2008 (Mark Wilson/Getty Images)
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Scott Jagow: Meantime, the Big Three are back on Capitol Hill today to plead their case one more time. But even if there's a bailout, if no one's buying cars, what good will it do? Marketplace's Janet Babin reports from North Carolina Public Radio.
Janet Babin: A $25 billion bailout would help the Big Three fund their operations, but customers might still stay away. Who wants a car from a company that might not be around next year? What about your warranty, or your service center?
Susan Helper at Case Western Reserve University says that could be addressed in the bailout legislation. She says money could be put in escrow for warranty repairs:
Susan Helper: When the dealer fixes your car under warranty, the dealer could just apply to this fund for repayment, rather than to the auto maker. So that should relieve some of the concern that warranties wouldn't be honored.
Helper says after the first Chrysler bailout in 1979, the government netted a profit of more than $300 million. Even with the bailout, few consumers will have the cash, or be able to get the loans needed to buy new cars.
Helper says that's why the government has to pass a wider stimulus package. While the House considers a bailout for the Big Three, the Senate could vote on its plan as early as today.
I'm Janet Babin for Marketplace.
Comments
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From Rocklin, CA, 11/19/2008
The U.S. auto industry must change to compete.
Read about Dr. Deming and how he helped Japan rebuild.
http://en.wikipedia.org/wiki/W._Edwards_Deming
From VA, 11/19/2008
With all the talk about bailing out the Big Three automakers, I haven't heard a word about tying any financial aid to sustainable technologies. Why?! If we should consider assisting this currently uncompetitive, archaic, and unstable industry, shouldn't it be as an equity investment tied directly to automotive technologies that serve our nation's strategic goal for clean energy-based transportation products?
From warren, MI, 11/19/2008
There is too much capacity in the auto industry and demand will never revive to balance the excess. Government loans will not avoid the inevitable loss of jobs and downsizing required to bring sustainable operating levels and profitability to this industry. So the question is what is the best process for transforming the autos, bankruptcy or government loans with government directives? Many individual workers and retirees will be, unfortunately, negatively impacted. The American taxpayer is going to have a big bill for safety net costs such as unemployment benefits regardless of which approach is taken. Bankruptcy is going to be messy and provide another shock to an already stressed economy. Theoretically I favor bankruptcy but now may be a time to put aside principle and opt for a slower transition. So give them the government loans with strong stipulations concerning reorganization requirements
From Los Gatos, CA, 11/19/2008
If the automakers are allowed to go out of business, 10 million more Americans will be out of work and the unemployment costs to the American taxpayer will exceed $200 billion per year.
Look around. 9,000 homes are going into foreclosure, hundreds of companies are closing, and thousands of jobs are being lost every single day. After these armchair automakers gave the banks $1 trillion to loan out, credit card limits are being reduced and no one can get a loan to buy anything, let alone a car. What is happening to the automakers now is not a result of their problems.
The car makers didn't bring this $14 trillion economy to its knees. The government and the banks did. Now they're doing their best to make it worse.
$25 billion is not enough. Since the banks are not making auto loans, we have to also fund Ford Finacial, GM Credit, and Chrysler Finance and mandate that the money be used to issue low interest auto loans. Would you rather loan automakers $100 billion that you will end up getting back, or would you like to lose an amount climbing from $200 billion?
http://ewebsmith.com/gov/autobailout.html
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