Friday, August 29, 2008

GM Wants $50 Billion From Uncle Sam

GM has stepped up its marketing efforts to gain favor for the beleaguered US auto industry from Uncle Sam.  I suppose the automakers believe that if the entire financial sector can get loans from the Fed to stay afloat, why shouldn't US car companies?  According to the New York Times, GM Vice Chairman Robert Lutz claims that "The American auto industry is deserving of government loan guarantees."  According to Mr. Lutz, US automakers need to build more fuel-efficient cars.  They can only do this if Congress acts by the end of September to grant them $50 billion in loans.  This is a matter of national emergency now because the US auto industry was too busy helping consumers purchase non-fuel-efficient SUVs and trucks by offering attractive financing for the past several years.  They didn't have time to concentrate on fuel-efficiency because they were too busy making money on large vehicles sales.
In curiously-related front page news, Delphi, the auto-parts maker, looks less likely to emerge from Chapter 11 as a standalone company.  If a liquidation occurs, GM will take over some of the plants.  According to the Wall Street Journal, the auto-parts maker is facing several financial hurdles before the end of the year.  Delphi's financing expires at year end and its current lenders are unlikely to renew.  GM will need to either inject cash into the pension plan or assume some of it.  A liquidation of Delphi, which employs 159,000 and had $22 billion in revenue last year, would be extremely expensive for GM, who would need to decide whether to continue running some of the plants to keep parts flowing to GM's assembly lines.  So, you see, a $50 billion loan could come in very handy right about now.  
With sales of cars and light trucks down 20% so far this year, the US auto industry is running out of ideas to stay afloat.  Government loans certainly seem like an easy way out.  Increased fuel-efficiency in cars on the road is currently a politically savvy priority.  Asking for a government loan under the guise of environmentalism may be viewed as a brilliant PR move.  Skeptics like myself find it hilariously ironic.  


Oscar said...

The Fed will accept Hummers as collateral, of course.

underdog said...

All you need for government bailout is to screw up / misread the market on such a grand scale that it put's the nation's welfare in supposed jeopardy. First the banks, then GM. What else is dealing in over-priced products and could claim bailout for the national good? Hmmm, Super FarmAid in 2009, anyone?

Snipeman said...

For that amount of money I could supply a system to every car in Americs that would increase the efficiency to well over 100 mpg. The technology is available right now.