Government Set To Bail Out Major US Automakers

November 16, 2008

A plan is in the works by the Bush administration and the US Treasury to expand the scope of the $700 billion rescue plan to include US automakers. According the legislation that authorized the bailout, the top three American car companies are eligible for financial assistance.

The move is a bold one, and according to some analysts, it would put the Treasury in a new position as a speculator on whether businesses will succeed or fail in the markets, making choices in either regard. This would fundamentally change the original intent of the bailout plan as a means to free up the credit markets.

Of all the other companies that may already be in a position to benefit from the rescue plan, automakers are considered especially vulnerable to the spiking financial conditions. The financial organizations affiliated with carmakers tend to produce higher profits than the vehicles themselves. At the same time, the credit crisis has hit this aspect of business the hardest. Financing has slowed to almost a complete stop. Consumers, in turn, are left without the means to get loans to buy vehicles; even dealerships are having difficulty getting finances for inventory.

The percentages of sales for GM, Ford and Chrysler are have climbed to double digits. Additionally, the companies were forced to eliminate both jobs and employee benefits in order to salvage their businesses and maintain necessary capital.

There are even talks of a merger between GM and Chrysler in an attempt to save both companies from total financial ruin as cash reserves are disappearing at an alarming rate. Alternative plans include a partnership with Nissan and Renault.

While a $25 billion loan package was rushed through Congress in an effort to increase production of energy-efficient cars, the financial boost may not be implemented fast enough to be of use to the automakers.

In talks with Treasury and Energy department officials, the auto company execs have been urging for faster relief plans to minimize the losses. It is still unclear exactly what measures will be used the US Treasury to aid ailing automakers.

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Comments

3 Responses to “Government Set To Bail Out Major US Automakers”

  1. Patrick on November 16th, 2008 8:21 pm

    In the case of the auto-makers’ bailout, it’s a relief to have a national issue that is so straightforward: American cars tend to break down and fall apart therefore people have stopped buying them. If GM and Ford don’t want to go out of business, they should start making decent cars. To bail them out would be to reward their terrible manufacturing standards.

  2. sherry on November 16th, 2008 8:36 pm

    I think we best be getting on with the promise of making America energy independent.Iran just asked OPEC to reduce production by yet another 1.5 million barrels per day.This past year and the record gas prices played a huge part in our economic meltdown and seriously damaged our society.We keep planning to spend BILLIONS on bailouts and stimulus plans.Bail us out of our dependence on foreign oil. Make electric plug in car technology more affordable. It cost the equivalent of 60 cents a gallon to drive an electric plug in car. The electric could be generated from wind or solar. Get with it! Utilize free sources such as wind and solar. Stop throwing away money on things that don’t work. Invest in America and it’s energy independence. Create cheap clean energy, create millions of badly needed green collar jobs. Put America back to work. It is a win-win situation. We have to become more poractive citizens, educate ourselves and demand our elected officials move this country forward into the era of energy independence. Jeff Wilson’s new book The Manhattan Project of 2009 Energy Independence NOW outlines a plan for America to wean itself off oil. We need a plan and we need it now! http://www.themanhattanprojectof2009.com

  3. Andy on November 16th, 2008 8:36 pm

    The key will be structuring the bailout in an effective manner to ensure long term sustainability of the US car makers.

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