Automakers to get $17.4 billion loan
President Bush announced that the federal government will offer General Motors and Chrysler $17.4 billion in loans to help the struggling auto industry. The loans will come from the Troubled Asset Relief Program. Scott Jagow speaks with Alisa Roth about the conditions of the bailout.
President George W. Bush makes statements about the plan to assist automakers in the Roosevelt Room of the White House December 19, 2008 in Washington, DC. Bush announced $17.4 billion in loans to General Motors and Chrysler in exchange for concessions from the companies and workers. (Ken Cedeno-Pool/Getty Images)
TEXT OF STORY
Scott Jagow: No more secret Santa from the White House. This morning, it finally announced a bailout package for the automakers -- $17.4 billion in loans to GM and Chrysler. They can have the money this morning, And it's coming from the money designed for financial companies - the $700 billion. Here's President Bush a short time ago:
Jagow: We're joined now by Marketplace's Alisa Roth in New York. She's been following this story all along. Alisa, what are the strings attached?President Bush: By giving the auto companies a chance to restructure we will shield the American people from a harsh economic blow at a vulnerable time.
The first thing is that the carmakers are to ask for concessions from everybody. So we're talking about debtholders, we're talking about suppliers, we're talking about workers. It sounds like the carmakers are going to have to reduce wages sand benefits so that they match up with the foreign carmakers -- the Toytas and Hondas and so on who are working here in North America. The other thing is that the executives are going tohave to give up persk, including those infamous corporate jets that they felew ot Washington before Thanksigiving.
Jagow: And how long do the carmakers have to get their act together?
They have until the end of March, so 3 months basically to come up with viable plans to become profitable and sustainable companies. That doesn't mean that they have to have those plans in place, they just have to have plans that make sense for them to get there. Which brings us to what happens if they can't come up with reasonable plans... In that case they ahv eto give the money back and they're going to have to declare bankruptcy. That's the only other option.
Jagow: Ok, Alisa Roth in New York. Thanks.
You're welcome.
Comments
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From Chilliwack, BC, 12/19/2008
I've said it before & I'll say it again: bailouts of failing organizations are akin to investing in old ideas, and the old idea in this scenario is the U.S. auto industry. A bailout will do nothing but hinder the next wave of change from happening. Simply put, the handout will be interpreted by the Big 3 as a reaffirmation that their old ways and skills are still viable, instead of motivating them to seek innovations that will help them in the coming decade.
When you've been successful with an idea for a century, its hard to recognize it's time to call it a day. Odds are good it will be someone else calling it a day for you. Today the Gov't missed that chance, but I'm sure the law of natural selection will handle that not too far from now.
From Wapello, IA, 12/19/2008
I understand that the auto industry employs thousands of people. And I certainly don't want anyone else to lose their job. But everywhere I go I see car lots, new and used dealers lots, full of cars. Nobody is buying. Why? The easy answer is to say " it's the economy, banks won't give financing even to people with a good credit history. I disagree. I think at the root of it is that people can't afford the prices that auto makers are asking for new vehicles.
Say you are lucky enough to find the vehicle you are wanting (had to sacrifice a few options) for $25,000 out the door. Even at ZERO interest for five years - which is only offered to those with EXCELLENT credit (not many of those people left) you still pay $417 per month just for the car. Of course your insurance is going to go up because now you have a new car not the 10 yr old model you have been getting by with. So figure that new car cost you $500 per month.
Unless you enjoy spending 125% of what you make (isn't 20 yrs of doing that what created the credit mess we are now in?) The middle class can't afford it. Or I guess since the media now tells me the UAW employs making easily six figure incomes (benies included) are actually the MIDDLE class??? I should say the millions of people like myself living below Middle class income can't afford it.
So what do we do to save the auto makers? We cut the Selling price of the vehicle down to a break-even for the manufacturer. They can recoup cost for materials, percentage of utilities and percentage of worker salary. And by percentage I mean if a guy touches 4 vehicles per hour at his station, his $40 (probaly more like $60 but I'll be nice) per hour UAW salary is broken down as $10 per vehicle.
Lets take the perks and bonus's and profit sharing slush fund out of the new vehicle price and sell a vehicle for what it truly cost to make it.
I realize this can't go on long term. Maybe 2-3 years. But if you cut new car prices by $12,000 to $15,000, you are going to get people buying. Ripple effect is: More new cars bought, more cars traded in at 2-3 years old instead of traded in at 10 to 15 years old (and reflecting the drop in new car prices- these 2-3 yr old cars sell for $8000 to $10,000 less than previously), result 20 yr old High Emissions / Poor Economy vehicles are voluntarily taken out of circulation. Better for the enviroment, better use of oil, insurance rates should go down as saftey ratings of operating vehicles goes up.
But the best part would be; if people start buying vehicles again, it would take some of the pain out of the government being told they HAVE to bail out an industry that makes something nobody buys - just so the people making it can have a job.
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