$634B Spending Bill Now In Congress Provides Loans for Automakers

An overwhelming 78-12 vote by the Senate sends a massive $634B spending bill to President Bush, who is expected to sign the measure before the government's fiscal year-end comes to a close on Tuesday.

The bill contains provisions for $25B in subsidized loans for automakers in addition to removing a ban on offshore drilling on the Atlantic and Pacific coasts. Participating companies from the auto industry would not have to begin repayment of the loans for five years and the proceeds are meant to be used in the development of more fuel efficient vehicles through new technologies and revamped manufacturing plants.

Since companies such as Ford (F) and General Motors (GM) are below investment grade, company officials argue they cannot access capital at reasonable rates which hampers their ability to compete with global giants such as Toyota (TM) and Honda (HMC).

The accompanying tables contain an overview of my Global Auto Index, which declined by over 26% on an equal-weight basis and 13.5% on a marketcap-weight basis over the past year (all stats are through 8/8/08) for the 39 companies. Of the top companies by largest market cap, only Volkswagen (VLKAY.PK) showed a gain over the past year with an industry-best stock price increase of 45% as industry leader Toyota lost nearly one-fourth of its market value.

The Defense Department will receive $488B (a 6% increase), which is in addition to $70B already approved this past summer to fund operations in Afghanistan and Iraq. Meanwhile, Congressional leaders are working through the weekend with the goal of finalizing a deal by 6 p.m. on Sunday evening before the Asian markets open for trading.

Global Auto Industry Index Statistics

Top 5 Companies by Market Cap

Disclosure: None

Comments

[whidbey:]

Good money after bad. These firms got themselves into difficulty with labor cost give-away, poor designs and short run plays on high yield vehicles. Why would we believe they have changed? Poor decision, again.

2008 Sep 28 01:27 PM

[vermont:]

let's reward poor judgement, arrogance, and greed....sound familiar...does not the white house and congress get it......as they work to "save the economy from wall street".......with the current 85B bailout...this is the same b.s.

2008 Sep 28 06:10 PM

[mixter:]

The US automobile industry is a good example of what unions and stupid management can do. I will never buy a US made automobile that was made after 1958. They are poorly engineered, made, and a junk! I have had three Toyota made cars, and they are head and shoulders above anything a US car company puts out.

The unions and stupid management destroyed the US steel industry too!

2008 Sep 28 07:59 PM

[Mister Jimmy:]

I leased a new 2004 Toyota Sienna and it turned out to be an over-rated piece of sh-t. Even during the warranty period, the dealer took a "you did it" attitude on every electronic and mechanical failure. Such arrogance. Toyota works very hard...at prolonging the perception of superiority,

2008 Sep 28 10:07 PM

[bowman711:]

I put 250,000 miles on a little 1991 Pontiac and it was in the repair shop only twice - one was when my wife had it in an accident - other than for routine maintenance like brake lining replacement, transmission service, oil changes, etc. I now have about 175,000 miles on my 2002 Chevy Silverado 1/2 ton pickup and it has been in the shop only once, other than for routine maintenance. I'd like to see a Toyota outdo that. And, when a GM vehicle is in the shop, the cost of repairs are generally lower than for comparable foreign cars or pickups.

2008 Sep 29 05:19 AM

[User 272270:]

My first car- 93 Pontiac Grand prix...I put 210k on it before selling it to a high school kid. Since then I had a 97 Buick Park Ave Ultra...put 180k on it. I now have Pontiac G8 and Cadillac DTS...both spectacular cars at reasonable price compared to all other competition. In the 90's some of the quality for GM products had room for improvement...but in todays market there simply is no gap between foreign cars vs GM in relation to quality. Dont take my word for it, take a look at JD power etc and they will tell you this fact. In the 90's these types of comments had some truth, and since then GM has made great strides to bring the quality up inside and out of every single GM vehicle. Only thing i can think of when people post comments negative towards GM today, is they are jealous that their neighbor has that brand new Malibu or Cadillac...while they still have their boring camry / prius.

2008 Sep 29 08:52 AM

[Jeff B.:]

As if we needed any further proof that our elected officials (both parties) work directly against the best interests of the American people at large, here is more proof --- a bailout of an industry that has steadfastly refused to address it's number one failing for decades: it makes mediocre quality, inefficient cars that fewer & fewer people want to buy. So what do we do? Hold them accountable? Nah, let's give them $25B in taxpayer $$ so they can continue down the path of self-destruction. Mark my words, the mild constrainst congress put into this bill will soon quietly disappear, and we'll end up with the bill.

2008 Sep 29 10:07 AM

[User 272270:]

So many people are confused on this auto loan package...This isn't a bailout for the automakers, 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.

2008 Sep 29 10:42 AM

[dumb auto w...:]

It is very hard to get people to buy from the Big Three once they have lost
confidence with the US quality.
Our vehicles are about as good as anyones they are made by Americans living the American life.
We also spend $ in the US.
The US auto companys may have invented the middle class.
Where will I go for my next job ?

2008 Oct 01 11:26 AM

[Distressed ...:]

GM Exchange Traded Unsecured Notes $XGM, $GMS, $HGM Being Dumped, If there is bankruptcy risk, why isn't common being trashed? Are they dumping to realize losses and load up on the common, or are they running away from the unsecured debt because they're now probably behind the gov guaranteed debt. wtf specific write up tinyurl.com/4wx8sh

2008 Oct 01 06:47 PM

[directcommu...:]

they are not rewarding poor judgement, they are profiting off of offering loans to struggling companies. This is not a gift from the feds, they are actually going to make a profit.

2008 Oct 05 01:47 PM