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White House to Detroit: Help is on the way

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December 16, 2008

Detroit automakers, teetering on the brink of collapse, are receiving strong signals from the White House that short-term help is on the way while a key senator says the relief package could reach $15 billion for GM and Chrysler.

President George W. Bush said a bankruptcy in the U.S. auto industry would hurt the economy while the U.S. deals with the recession. General Motors Corp. and Chrysler LLC have said they could run out of cash within weeks without support from the government.

"An abrupt bankruptcy for autos could be devastating for the economy," Bush told reporters Monday aboard Air Force One during a surprise trip to Iraq and Afghanistan. He said they were "now in the process of working with the stakeholders on a way forward."

In Detroit, Sen. Carl Levin, D-Mich., said he expects GM to get $8 billion and Chrysler $7 billion from the Bush administration. He said the Treasury secretary likely would be tapped as a "car czar" to oversee restructuring of the companies.

Bush wouldn’t give a precise timetable but said, "This will not be a long process because of the economic fragility of the autos."

Vice President Dick Cheney, in an interview with conservative talk show host Rush Limbaugh, cautioned that "if the automobile industry goes belly up now, there’s a deep concern that that would be a major shock to the system."

The Treasury Department has held discussions with GM and Chrysler and reviewed financial data from the car makers. It said Monday that no decisions had been made on what type of support it may provide to the companies.

The administration, following the defeat of a $14 billion bailout package in the Senate last week, is weighing several options. They include using money from the $700 billion financial bailout fund to provide loans to the carmakers or using money from the fund as collateral for emergency loans the automakers could get from the Federal Reserve. Bush reiterated that tapping the financial bailout fund remains an option.

House Speaker Nancy Pelosi, D-Calif., said the bailout funds were "the only recourse that they have" because of the failure to pass legislation in Congress. She said "something will have to happen imminently" but said requirements for restructuring should be attached to the funds.

"Otherwise, we’re just giving life support, rather than a lifeline for viability into the future," Pelosi said.

White House spokesman Tony Fratto said the administration was considering policy options, and that "when we have something to announce, we’ll announce it. We’ll take the time we have available to get the policy right."

The White House is keeping President-elect Barack Obama and his advisers informed of the discussions. If administration officials choose not to provide the money now, the Obama team could wait for the new Congress, which will have stronger Democratic majorities. But the delay could risk bankruptcy filings by GM and Chrysler.

The White House previously had insisted on limiting use of the Wall Street rescue plan to helping financial institutions. It changed course after the auto bailout bill failed in Congress, citing the consequences to the overall economy if U.S. carmakers failed.

Levin said he expects the Bush administration’s plan to help the Detroit automakers will be similar to the previous deal the White House reached with congressional leaders.

That plan providing loans for GM and Chrysler to help them survive until March 31 was passed by the House last week but blocked by the Senate, mainly by Republican senators, after the United Auto Workers union balked at making upfront wage concessions to take effect sometime next year. Ford Motor Co. has said it has enough cash to survive 2009.

3 Responses to White House to Detroit: Help is on the way

  1. Cashel Boylo

    December 16, 2008 at 8:55 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 car maker subsidiaries of the corporations employ only a quarter-million workers. And these companies will be lucky to 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 real economy into the new Conomy, where it well may blunder into some of the $27 trillion worth of bundled, debt-backed securities that have swamped financial markets since 2001.
    No prize for guessing who made the change in 2001.
    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.
    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 farcically “regulated” system and borrowed and lent as they wished, making up paper securites to “secure” the paper money.
    And then derivatives of derivatives, vapor money on vapor security.
    Saving the flatulent, ridiculous, anachronistic, nepotistic, feudalistic 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 and the contractor companies 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

  2. SNAFUBAR

    December 16, 2008 at 10:25 am

    I say let GM crash and burn, Ford may be able to restructure and start selling more hybrids and electric cars and less Excursions/Exploders.

  3. Charlie Couser

    December 16, 2008 at 12:37 pm

    What an interesting insight into the heart of a very complex tale of greed & horror!

    I agree with your assessment of the fate of the Big 3.

    Charlie Couser