Government Approves $25B Low Cost Loan Package for Auto Industry 18 comments
an article to
-
Font Size:
-
Print
- TweetThis
In a move that isn't likely to get much attention due to the current row over the banking industry bailout, Congress approved $25 billion worth of low cost loans for the auto industry today:
(From the FT):
The House of Representatives on Wednesday approved a $25bn package of low-cost loans to help hard-pressed carmakers and their suppliers finance plant modernisation at a time of restricted access to public capital markets.
The automotive loans are separate from the proposed $700bn bail-out for the banking sector, which is still being debated in Congress. The House approved the measure 370-58, setting the stage for Senate approval within days.
The industry’s case has been helped by the fact that Michigan and Ohio, the two states most dependent on the car industry, are key swing states in the November 4 presidential election.
Executives of General Motors (GM), Ford Motor (F) and Chrysler and their suppliers have lobbied heavily for the loans. Both presidential candidates, John McCain and Barack Obama, have expressed support…
...The loans were originally authorised in an energy bill passed last December to finance the retooling of plants for more fuel-efficient vehicles, especially hybrid and electric cars. But they have become a crucial prop for Detroit carmakers.
The continuing resolution provides funding for $7.5bn, which is the estimated subsidy on the loans – in other words, the cost to the government of providing them at well below market rates.
The loans will not take effect until the energy department has written detailed regulations dealing with, among other issues, which investments will qualify and conditions for repayment. Congress has directed the department to begin writing the regulations quickly and will provide any extra staff required to do so. One lobbyist said he hoped the regulations would be completed by early 2009.
All carmakers and suppliers with operations in the US are theoretically eligible. However, the energy bill restricts benefits to plants that have been in operation for at least 20 years, thereby excluding most foreign carmakers.
A Toyota (TM) spokesman said his company was agnostic on whether it derived any benefits. It has kept a low profile in the debate on the loans.
At some point we, as a nation, are going to have to abandon the idea that we are a free market capitalist society, and just admit that we are a "convenience economy." We are socialist when it's convenient, and blow the free-market horn when that's convenient as well. Or perhaps we have a free market economy when it works, but the government is always ready to step in and help Corporate America clean up its mistakes.
Mind you, I'm not disputing the sheer economic value of the domestic auto industry or the need for them to retool, I would just rather any help from the government come with some sort of penalty, higher cost or a more tangible benefit to taxpayers at large. For instance, if the auto industry has to borrow money from the government to operate, than they should be required to provide low cost auto loans to low income people, or provide job training, employment, etc, to same. Additionally a % of their future profits should be kicked back to the taxpayer as well.
For me, it's not so much the value of any benefit I receive personally if/when the government has to bailout or help a particular company, it's the overall principle of the thing. It's a lot easier to support bailouts (and trust the politicians making the decisions) when they treat the taxpayer with respect and outline the direct benefits we'll receive, as opposed to saying: "do it for the economy."
You can read more here.
Sources:
The Financial Times: "House clears $25bn for carmakers" -- Bernard Simon, September 25, 2008.
Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
Top
StockTalkers.-
1
David Fry
-
2
Cliff Wachtel
-
3
Mike Havrilla
-
4
David White
-
5
Hedged In
Top StockTalkers » -
1
CAFE is far more socialistic than any government loan package will ever be. It penalizes Auto companies for selling a vehicle mix the government doesn't like but consumers actually prefer. It is also the root cause of the truck/SUV fad because the CAFE requirements for these vehicles were much lower than cars so Auto companies could make the big trucks/suvs customers wanted without paying a CAFE penalty.
The loans also come with huge requirements. They will be given out on a plant by plant basis and each plant must be at least 20 years old (Honda, Toyota, and Nissan plants are elligable) and the loan must be used for tooling for a new vehicle that gets 25% better mpg than the previous vehicle the plant produced.
If the government treated the banks and wall street like they treat the Auto companies they would have raised the capitalization rates 20 or 30% when the credit crisis hit instead of pumping cash into the system, opening the discount window, and eventualy offering to buy all of the bad debt. That is the definition of a bailout, not the loans to the Auto companies.
If our domestic automakers are trying so hard, why don't they -
1. Import the 40+ mpg cars they build that are selling well in Europe and elsewhere? They don't need $25 billion to do that, just some cargo ships (which I suspect are readily available right now real cheap.)
2. Start building the NGV's again (they sell them in Canada and other countries) that Boone Pickens is spending $60 million to advertise for them. They'll sell more of them than Volts, and make more money doing it.
3. Send each dealer who wants one a dual-fueled NGV, and help them set up a CNG refueling depot at their dealership.
And for Christ's sake, do SOMETHING besides go crying to Washington. In their current state of affairs, the Congress could send them the $700 billion they want to spend on the bank bailout, and it would only STILL only be a matter of time until they ended up in bankruptcy.
GM =Global Motors
It's not you daddys gm!
along with tax incentives to build these plants its a win win
for the consumer and the unions
most important for GM
imho
Paul- Here are the answers to your questions.
1. Import the 40+ mpg cars they build that are selling well in Europe and elsewhere? They don't need $25 billion to do that, just some cargo ships (which I suspect are readily available right now real cheap.)
Answer: If you understand the relationship between the dollar and foreign currency...you now understand that the difference between these two makes a big difference between the profit a company came make when shipping cars over here. Also, you have under estimated the cost it takes to ship these cars over here. If it was so easy, why don't all the foreign car makers do the same thing? Its simple, it cost more than what you think. Its cheaper for the car manufactures to build billion dollar plants in the US then it is to ship these cars here.
2. Start building the NGV's again (they sell them in Canada and other countries) that Boone Pickens is spending $60 million to advertise for them. They'll sell more of them than Volts, and make more money doing it.
Answer: Detroit could produce Natural Gas cars if they wanted...in fact there are many of them (mostly trucks) that are on the road today. The reason these truck companies have them, is because they are willing to build (spend billions) these natural gas fill up stations needed to fuel these NGV trucks. The answer here is, if some entrepreneur / govt funding would start putting natural gas pumps readily available at your local BP/Shell etc...then the automotive industry would start pumping these cars out in the masses. After all, this technology isn't new by any means. You cant blame Detroit for not pumping these NGV cars out by the masses when no one will buy them because there is no where to fill your car up with Natural gas. Having one pump every 5,000 miles isnt going to cut it...
3. Send each dealer who wants one a dual-fueled NGV, and help them set up a CNG refueling depot at their dealership.
Answer: Who is paying for this CNG fueling station? Once again you have under estimated the cost of this type technology ....you cant expect a struggling auto industry to come up with billions of dollars to transform the way we used the automobile today without providing them funding. How comes people arent saying that your local Exon etc (that are making record profits) should build these at their expense? After all they are in the buisiness of filling your car up...not the auto industry.
So many people are confused on this auto loan package...This isn't a bailout for the auto industry this 25 billion pkg was approved last year under energy bill that was passed by congress. This legislation wasn't just approved, it was funded. If the govt comes out tomorrow and says that (pick any industry that is struggling now) it is mandating certain mpg requirements a few years from now that will cost these companies billions of dollars...the govt has no choice but to provide loans to make this happen, otherwise the companies simply will not be able to meet these requirements and more jobs will be cut. This wasn't a bailout, it was a promised loan that was part of the agreement between the auto industry and the govt last year to reduce our dependency on foreign oil. Isnt this what we want? Everyone keeps complaining about fuel prices...but these same people dont understand the fundamentals behind getting us there.