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Bush not willing to let auto industry fail

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December 13, 2008

The Bush administration simply wasn’t willing to stand by and watch the American auto industry financially collapse — the stakes were too huge.

So the administration committed Friday to step in and help avoid the collapse of the industry that was once the backbone of the nation’s economy. Administration officials are talking with those automakers about conditions that must be met to get the aid and have not made final decisions on the size or duration of the help.

"A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time," Bush spokeswoman Dana Perino said. She noted that in normal times the administration would prefer to let the markets determine the fate of private firms, but these times are far from normal.

She said that because of the current state of the economy the administration would consider various options, including use of the TARP program, which has been aimed at bailing out the nation’s finance system. TARP is the $700 billion Troubled Assets Recovery Program, the financial industry bailout plan enacted in October and the White House has long insisted that money should be reserved for stabilizing markets.

Perino said that while "the federal government may need to step in to prevent an immediate failure, the auto companies, their labor unions, and all other stakeholders must be prepared to make the meaningful concessions necessary to become viable."

The White House comments were welcomed by Sen. Carl Levin, D-Mich.

"The effort to provide emergency bridge loans to U.S. automakers is still very much alive," Levin said. "I am encouraged that the White House said today that they will consider other options to assist the auto companies, including use of the TARP program."

Wall Street rebounded from an early sell-off Friday to finish in positive territory after word that the government would assist U.S. automakers.

General Motors Corp. and Chrysler LLC have warned they are running out of cash and face bankruptcy without some form of assistance. Ford Motor Co., which is in somewhat better shape financially, has been seeking access to a line of credit.

Highlighting those difficulties, GM announced Friday it would cut another 250,000 vehicles from its first-quarter production schedule — a third of its normal output — by temporarily closing 20 factories across North America. The move affects most plants in the U.S., Canada and Mexico. Many will be shut the whole month of January.

Congressional efforts to aid the industry ran aground Thursday. The White House and congressional Democrats agreed on a $14 billion measure that would have extended short-term financing to the industry while establishing a powerful new "car czar" to make sure the money was used to turn the Big Three into competitive companies. That bill passed the House on Wednesday but immediately ran into opposition from Senate Republicans who said it did not go far enough.

On Thursday, the GOP lawmakers demanded the United Auto Workers union agree to accept a lower pay and benefits package that would be in line with compensation earned by workers at U.S. factories producing cars for Japanese companies such as Honda, Toyota and Nissan. Those companies have plants in the states represented by some of the most ardent critics of bailing out Detroit. The effort ultimately collapsed when the UAW balked at the terms demanded.

"We’ve already stepped forward and made enormous concessions," UAW President Ron Gettelfinger said Friday at a news conference. "But as we made it clear … , we were prepared to make further sacrifices. But we could not accept the effort by the Senate GOP caucus to single out workers and retirees for different treatment and to make them shoulder the entire burden of any restructuring."

Sen. Bob Corker, R-Tenn., who played a leading role in the Republican effort, said the likelihood that the White House would step in probably made sure there would be no deal with the UAW.

And Sen. Richard Shelby, R-Ala., who has been one of the most strident critics of bailing out the Big Three, said any plan by the Bush administration to give the automakers TARP money should require them to restructure their companies.

"If they’re going to give them TARP money, this administration ought to have the courage in its last 40 days to stand up and say, If you’re going to get that money, you’re going to restructure,"he told CNBC. "I don’t believe the Bush administration will do that."

One Response to Bush not willing to let auto industry fail

  1. Cashel Boylo

    December 14, 2008 at 1:02 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.
    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