What now for the auto industry?

Their efforts in Congress squashed, U.S. automakers are depending upon a reluctant White House to quickly provide a multibillion lifeline to help them avoid imminent collapse.

General Motors Corp. and Chrysler LLC, which have said they could run out of cash within weeks, have few options left after the dramatic defeat in the Senate of a $14 billion bailout for the domestic auto industry.

Its demise late Thursday prompted immediate calls from lawmakers in both parties for the Bush administration to tap into the $700 billion Wall Street bailout to rescue the beleaguered auto industry. The bill failed after talks broke down over the refusal of the United Auto Workers union to meet Republican demands for aggressive wage reductions.

The Senate rejected the bailout 52-35 on a procedural vote — well short of the 60 required — after the talks fell apart.

"I dread looking at Wall Street," said Senate Majority Leader Harry Reid in anticipation of Friday’s stock market reaction. "It’s not going to be a pleasant sight."

Stock markets in Asia and Europe dropped sharply on Friday after getting word of the bailout’s failure.

The Bush administration has repeatedly said the Wall Street bailout fund should not be used for emergency aid to the automakers because it was designed to restore stability to the financial sector. Following the vote, the White House said it was studying its options.

"Plan B is the president," said Sen. Carl Levin, D-Mich. House Speaker Nancy Pelosi said action by President George W. Bush was the "only viable option."

General Motors and Chrysler are in the most immediate danger while Ford Motor Co. has said it does not need federal help now, but could face collateral damage if one of its domestic rivals fell. With the economy in recession, the auto industry has struggled under the weight of lackluster sales and choked credit markets.

Detroit’s carmakers employ nearly a quarter-million workers, and more than 730,000 others produce materials and parts for cars. If one of the automakers declared bankruptcy, some estimate as many as 3 million U.S. jobs could be lost next year.

The White House said it was disappointed by the vote and the legislation "presented the best chance to avoid a disorderly bankruptcy while ensuring taxpayer funds only go to firms whose stakeholders were prepared to make difficult decisions to become viable."

Many congressional Republicans and some economists said the companies would be best to pursue a prearranged bankruptcy that would allow them to restructure quickly. But most Democrats and the carmakers rejected that, arguing it would quickly lead to liquidation because consumers would never buy cars from a bankrupt auto company.

As it lobbied unsuccessfully on Thursday, White House officials said the weak economy couldn’t afford the collapse of the auto industry. President-elect Barack Obama said an industry shutdown would have a "devastating ripple effect" on the already battered economy.

GM said in a statement is was "deeply disappointed" that the bipartisan agreement faltered. "We will assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis," the company said.

Chrysler said it was also disappointed and would "continue to pursue a workable solution to help ensure the future viability of the company."

The companies efforts for funding failed after a marathon set of negotiations at the Capitol among labor, the auto industry and lawmakers who bargained into the night to salvage the auto bailout at a time of soaring job losses and widespread economic turmoil.

The group came close to agreement, but it stalled over the UAW’s refusal to agree to wage cuts before their current contract expires in 2011. Republicans, in turn, balked at giving the automakers federal aid.

The UAW did not immediately react to the failure of the Senate proposal.

Aid to the automakers gained urgency last week when the government reported the economy had lost more than a half-million jobs in November, the most in any month for more than 30 years.

The stunning disintegration of the auto bailout proposal was eerily reminiscent of the defeat of the $700 billion Wall Street bailout in the House, which sent the Dow tumbling and lawmakers back to the drawing board to draft a new agreement to rescue financial institutions and halt a broader economic meltdown. That measure ultimately passed and was signed by Bush.

It wasn’t immediately clear, however, how the auto aid measure might be resurrected in a bailout-fatigued, postelection Congress, with Bush’s influence at a low ebb.

Earlier in the week, the House approved a bill that would have created a Bush-appointed overseer to dole out the money. At the same time, carmakers would be compelled to return the aid if the "car czar" decided the carmakers hadn’t done enough to restructure by spring.

Some Senate Democrats joined Republicans in turning against the House-passed bill, despite increasingly urgent expressions of support from the White House and Obama for quick action to spare the economy the added pain of a potential automaker collapse.

5 Responses to "What now for the auto industry?"

  1. adamrussell  December 12, 2008 at 8:54 pm

    Let the carmakers hire non union if they think they can get a better deal. Whats stopping them??

  2. gazelle1929  December 13, 2008 at 11:12 am

    “Our carmakers are now nationalized . . ..”

    Wow. I missed that one. Perhaps because it hasn’t happened?

  3. Malibu  December 13, 2008 at 10:31 am

    Our carmakers are now nationalized and I doubt they will ever again be able to make their own decisions. If they hire non union workers there will be some serious trouble that the government cannot do anything about. Maybe use the National guard……

    Malcolm

  4. Cashel Boylo  December 13, 2008 at 3:35 am

    Not Auto Makers but Bankers
    The simple truth is: GM Corp, Chrysler Corp and Ford Corp DO NOT MAKE CARS.
    Never in history has one of these bloated mismanaged money juggling corporations ever made a car.
    They are not Carmakers, they are simply moneymakers. They do not make anything other than money.
    And they do not make their money by making cars.
    They are not car makers, they are defacto BANKS — and they make their money the same way all banks do – not by producing anything, but by BORROWING MONEY AND LENDING MONEY.
    And these corporations do not employ one auto-worker.
    The cars are made by their subsidiary companies, contractors and employees, providing the corporations with enormous cashflow that is in turn lent yet again – and again and again and again.
    The subsidiaries of the corporations employ only a quarter-million workers. And these companies will not get one cent of any bailout. They will get only whatever may be left after the corporations have refilled all their deficient beg borrow steal and lend accounts.
    Contractor companies employ three times as many as the corporation subsidiaries – around three-quarters of a million –
    and these companies will NEVER see any sort of money from any sort of bailout.
    The corporations borrow money at low interest – by selling stocks, raising debentures, issuing bonds and borrowing from other banks. They lend the borrowed money at high interest to their subsidiaries and to their contractors and to their consumers, making exorbitant profits in the process.
    The enormous cash flow from multiple sources ebbs and flows. From time to time, there is some potentially idle money lying around – for a few seconds – then it is out in the short-term money market earning interest.
    Sometimes this money is used to buy “securities” that look attractive and reasonably liquid – backed by, say, home mortgages. Maybe bundled securities.
    The reason these corporations are in trouble is not their fifty years of gross stupidity in car design and manufacture.
    The reason is that right now, these banks (aka corporations) cannot borrow money. Nothing whatsoever to do with making cars.
    They cannot borrow money because there isn’t any money.
    There never was any money.
    The so-called “legal,” “licensed,” “authorised,” “regulated” whatever banks were allowed even pre-Dubya to lend ten times their capital.
    Bush, Cheney, Wolfowitz (now comically running World Bank) held this to be unnecessary restraint and allowed them to lend any amount of money they cared to lend, regardless of their capitalization or legitimate borrowing capacity.
    Money lender executives like Hank Paulson cheered enthusiastically and made many millions.
    So they lent many times all the so-called “money” in existence – on security that was as non-existent as the money.
    Non-banks were way outside of the “regulated” system and borrowed and lent as they wished, making up paper securites to “secure” the paper money they lent.
    Saving the flatulent, ridiculous anachronistic, nepotistic, feudal money-lending fiefdoms that own auto manufacturer subsidiaries will not save one of their subsidiaries or contractor companies or one employee job. What it will do, all it will do, is save GM Bank, Ford Bank, Chrysler Bank, their inept management and their major stockholders.
    The obvious alternative is to liquidate these corporations/banks by whatever means fits – and rescue intact the subsidiary companies and their line managements that actually do make cars.
    These real carmakers can then be sensibly restructured under competent carmaker (not moneylender) management, and there just might be some future for American auto manufacture.
    Cashel Boylo

  5. Cashel Boylo  December 14, 2008 at 1:23 am

    Not Auto Makers, Bankers.
    The simple truth is: GM Corp, Chrysler Corp and Ford Corp DO NOT MAKE CARS.
    Never in history has one of these bloated mismanaged money juggling corporations ever made a car.
    They are not carmakers, they are simply moneymakers. They do not make anything other than money.
    And they do not make their money by making cars.
    They are not car makers, they are defacto BANKS — and they make their money the same way all banks do – not by producing anything, but by BORROWING MONEY AND LENDING MONEY.
    And these corporations do not employ one auto-worker.
    The cars are made by their subsidiary companies, contractors and employees, providing the corporations with enormous cashflow that is in turn lent again – and again and again and yet again.
    The carmaker subsidiaries of the corporations employ only a quarter-million workers. And these companies will not get one cent of any bailout. They will get only whatever may be left after the corporations have refilled all their deficient beg borrow steal and lend accounts.
    Contractor companies employ three times as many as the corporation subsidiaries – around three-quarters of a million –
    and these companies will NEVER see any sort of money from any sort of bailout.
    The corporations borrow money at low interest – by selling stocks, raising debentures, issuing bonds and borrowing from other banks. They lend the borrowed money at high interest to their subsidiaries and to their contractors and to their consumers, making exorbitant profits in the process.
    The enormous cash flow from multiple sources ebbs and flows. From time to time, there is some potentially idle money lying around – for a few seconds – then it is out in the short-term money market earning interest.
    Sometimes this money is used to buy “securities” that look attractive and reasonably liquid – backed by, say, home mortgages. Maybe bundled securities. And the money is moved out of the economy into the Conomy.
    The reason these corporations are in trouble is not their fifty years of gross stupidity in car design and manufacture.
    The reason is that right now, these banks (aka corporations) cannot borrow money. Nothing whatsoever to do with making cars.
    They cannot borrow money because there isn’t any money.
    There never was any money.
    The so-called “legal,” “licensed,” “authorised,” “regulated” whatever banks were allowed even pre-Bush to lend ten times their capital.
    Bush, Cheney, Wolfowitz (now comically running World Bank) held this to be unnecessary restraint and allowed them to lend any amount of money they cared to lend, regardless of their capitalization or legitimate borrowing capacity.
    Money lender executives like Hank Paulson cheered enthusiastically and made many millions.
    So they lent many times all the so-called “money” in existence – on security that was as non-existent as the money.
    Non-banks were way outside of the “regulated” system and borrowed and lent as they wished, making up paper securites to “secure” the paper money.
    Saving the flatulent, ridiculous anachronistic, nepotistic, feudal money-lending fiefdoms that own auto manufacturer subsidiaries will not save one of their subsidiaries or contractor companies or one employee job. What it will do, all it will do, is save GM Bank, Ford Bank, Chrysler Bank, their inept management and their major stockholders.
    The obvious alternative is to liquidate these corporations/banks by whatever means fits – and rescue intact the subsidiary companies and their line managements that actually do make cars.
    These real carmakers can then be sensibly restructured under competent carmaker (not moneylender) management, and there just might be some future for American auto manufacture.
    Cashel Boylo

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