Supporting the Automotive Industry

by Brad Peck

The Washington Post, among others, had a story this morning on using the powers of the Emergency Economic Stabilization Act (EESA) to support the automotive industry. From the article:

The law grants the secretary broad authority to purchase troubled assets that he deems important to improving financial stability," said Treasury spokeswoman Jennifer Zuccarelli.

Ford and General Motors are eligible because they are both chartered as thrift holding companies, so they can establish banks to make car loans nationwide. Other businesses, such as General Electric, Nordstrom, John Deere and Macy's, are chartered in the same way to issue credit cards or make loans to their customers. Chrysler would also be eligible, Treasury officials said.
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Automakers are among the most troubled of the bunch. Their financing arms make more money than the cars themselves. Yet the credit crisis has all but frozen this part of the business, making it difficult for shoppers to get the loans to buy cars and even for dealers to finance their inventory.
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Though Congress rushed to pass a $25 billion loan package aimed at boosting production of energy-efficient vehicles, the money could come too late and could not be used freely by automakers.
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Last week, the Michigan congressional delegation, headed by Rep. John D. Dingell (D), implored Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke to use their "broad regulatory authority" to "promote liquidity in the U.S. auto industry."

The U.S. Chamber's Bruce Josten also sent a letter to Secretary Paulson and Chairman Bernanke last week in support of the effort.  From the letter:

The automotive industry is one of the most critical sectors of the U.S. economy with almost 4% of the U.S. gross domestic product and it is responsible for the one in 10 American jobs that are related to automotive manufacturing.

Directly and indirectly, the economic breadth and contribution of the U.S. automotive industry is deep and far reaching across the country. U.S. automakers directly employ approximately 355,000 American workers and indirectly employ nearly 5 million additional jobs through related industries that are dependent on auto manufacturing, sales, and related activities.

Over the last two decades, the automotive industry has invested nearly a quarter of a trillion dollars in the U.S. and is among this country’s top industries for R&D spending. Automakers also are among the largest purchasers of U.S.-manufactured steel, aluminum, iron, copper, plastics, rubber, electronics, and computer chips.

The financial crisis is having a dramatic, negative effect on automobile manufacturers, suppliers, and especially dealers and automobile finance companies that provide financing to dealers, consumers, and commercial purchasers of vehicles.

The current economic environment requires immediate government action to restore liquidity so that the U.S. auto industry is able to function, meet consumer demand, and develop new energy saving technologies. The Chamber urges you to use your broad regulatory authority and all of the tools available to you, including the powers recently granted to you by EESA, to support the distressed auto industry which is so essential to the U.S. economy.

In addition a letter was sent to Congress urging their support for the Department of the Treasury in this matter.

Comments

[Vanessa Baugh]

If we do the bailout it needs to be contingent upon the unions backing down and being reasonable on benefits and salaries. No business can succeed forever with the amount of monies paid to the employees... lets be real...

[Kevin B.]

A 25 Billion dollar loan to the automakers sounds like a small price to pay to help this important engine of our economy. Our country needs the engineering and manufacturing capabilities that this domestic industry provides. Who will be left to produce jeeps, tanks, and aircraft, should we suddenly find ourselves in need of these types of vehicles, if our domestic automakers are allowed to fail, without even being given a chance to recover? I agree that there will need to be strings attached to the money, to make sure that the Big 3 use it wisely, but when compared to the recent financial system bailout involving hundreds of billions of dollars (700 billion, to be exact), 25 billion seems like a spit in the ocean.

[ChristyB]

Why isn't anyone putting any of the blame where it rightly belongs? The CEO pay is extravagant, yes, but it is the Unions, with their outrageous pay and benefits that has brought the industry to it's knees. The Unions must be forced to see reason, when Honda and Toyota are paying an average of $48 per hours, and the big three are paying $78 PLUS generous pensions and gold plated health care benefits, it is plain to see where the problem lies!

Health care benefits alone add over $1000 to the cost of every car, where they only add $300 to a Toyota or Honda.

If there is any 'industry' in this country that needs oversight and regulation, it is the greedy and corrupt Unions!

Give the auto makers the money if you must, but force them into some kind of chapter 11 bankruptcy, so they can restructure and re-negotiate all Union contracts, cut benefits, pay and pensions from top to bottom. And stop forcing companies to pay workers who do not do their jobs! They MUST be allowed to fire lazy and incompetent people!

[Kevin]

As much as I detest the thought of bailing out the automobile industry, a segment of our economy whose chief executives have demonstrated such a lack of foresight that it staggers the imagination, I believe that the failure of that industry will have far-reaching effects upon our economy. However, just handing that industry a blank check for $25 billion is also not the answer.

WHAT DO WE DO? HAVE CONGRESS ESTABLISH AN ADDITIONAL TAX ON GAS OF 50¢ PER GALLON. GIVEN OUR CURRENT GASOLINE CONSUMPTION OF 390,000,000 GALLONS OF GASOLINE PER DAY, THE PROCEEDS REALIZED MAY BE AS MUCH AS $71 BILLION ANNUALLY.

THE APPLICATION OF THIS ADDITIONAL “GAS TAX” WILL FORCE THE AMERICAN CONSUMER (ALSO AN EXTREMELY SHORT TERM THINKER) TO LIMIT HIS OR HER GASOLINE CONSUMPTION.

THEN THE PROCEEDS OF THE GAS TAX MAY BE USED TO PAY FOR:

1) A TAX CREDIT OF $4,000 FOR EVERY CAR PURCHASED BY CONSUMERS THAT USES COMPRESSED NATURAL GAS TO OPERATE (INCLUDING HYBRIDS THAT USE COMPRESSED NATURAL GAS INSTEAD OF GASOLINE TO RECHARGE THEIR BATTERIES);

2) LOW COST FINANCING FOR AUTOMAKERS NEEDING TO RETOOL TO MAKE VEHICLES THAT RUN ON COMPRESSED NATURAL GAS AND GAS STATIONS WANTING TO ADD THE DISTRIBUTION OF COMPRESSED NATURAL GAS TO THEIR PRODUCT MIX;

TAKING BOTH OF THE ABOVE ACTIONS WILL INSURE A LONG TERM AND NOT JUST A SHORT TERM SOLUTION TO AUTO MAKERS’ WOES.

IS COMPRESSED NATURAL GAS THE SOLUTION TO OUR ENERGY PROBLEMS FOREVER AND EVER? NO. BUT IT MIGHT BE THE SOLUTION FOR THE NEXT 50 YEARS OR SO. IT MAY GIVE US SOME BREATHING ROOM AND ALLOW US TIME TO SEARCH CAREFULLY FOR ALTERNATIVES.

COMPRESSED NATURAL GAS BURNS CLEANER, IS CHEAPER, AND IS IN SUFFICIENT QUANTITIES IN THE U.S. TO SUPPLY OUR NEEDS FOR THE NEXT 50 -100 YEARS WITHOUT NEEDING TO RELY ON ANY IMPORTED OIL. (AND REMEMBER THAT WE’VE ONLY BEEN USING OIL BASED PRODUCTS TO OPERATE INTERNAL COMBUSTION ENGINES FOR A LITTLE MORE THAN 100 YEARS.)

[tatilendi]

Why is that the US automakers make lousy cars and the American tax payer has to bail them out?
I say let them merge and if they continue to make cars that can't be sold, let them fail.

[Mark fixes cars]

I think the American auto industry is worth a bailout as long as this comes with stipulations of no bonuses for executives and using all funds for retooling to be competitive. A glimmer of hope from china where the Buick car line is selling well and considered a status symbol for successful Chinese citizens.

[Lilia]

It's horrible. No more support for the homeowners but for the car industry? This is the most stupid thing I've ever seen. It looks like the US administration wants their citizens sleeping in cars instead of homes. Americans are more stupid than I thought.