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U.S. Auto Industry Desperate For Government Bailout

31 October 2008 - Markets - Editor

Further to Wednesday’s article (see "General Motors Seeks Government Aid For Merger With Chrysler"), a Bush administration official revealed late Thursday that the Treasury is not negotiating with automakers on any bailout deal. No reason was given for the decision, but the general consensus among people in the know, is that the Treasury is unwilling to pump large sums of taxpayers money into assisting a merger which would undoubtedly result in the loss of thousands of taxpayer’s jobs, with some estimating the potential job loss figure across the automotive industry to be as high as 90,000.

General Motors have been in talks with Chrysler owner, Cerberus Capital Management, for weeks with regard to a possible merger. They appear to have ironed out the logistics of the move, and all that is holding things back now is the financing. However, irrespective of whether the merger goes ahead or not, GM’s financial situation is such that the company is in urgent need of at least $10 billion in aid to avoid bankruptcy. Taking into account the number of jobs at stake and the fact that the financial sector is receiving billions of dollars in aid, many consider GM’s request to be reasonable.

Having drawn a blank at the U.S. Treasury, the auto industry is reportedly appealing to the U.S. Commerce Department for aid, and it seems that any money made available would come from the Energy Department’s $25 billion low-interest program aimed at the retooling of production plants to build more fuel-efficient vehicles. Officials have revealed that the rules and prerequisites for these loans should be in place by next week and automakers can expect to access the money by early in the new year. United Auto Works (UAW) are already planning to ask Congress for an additional $25 billion to be allocated to the program, as well as requesting a revision of the rules related to the loans to allow the money to be used for a wider variety of costs.

Via the National Automobile Dealers Association (NADA), the nation’s 19,700 auto dealers have appealed to the Bush administration and Congress to consider a plan to boost auto sales. Suggestions by NADA include tax credits for vehicle buyers, tax deductions on vehicle loan interest and paying car owners to trade in older models, as well as a loan guarantee program for dealers.

With the elections at the doorstep, interested parties are anxious to speed up the loans to the auto industry. While any action taken by officials with decision-making powers in the months ahead is likely to meet with a mixed reaction, American taxpayers, particularly those employed in the automotive industry, are no doubt hopeful that rescue measures will be undertaken.

 


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