Automakers Make Their Case for Federal Help

[Idealism]

Source: New York Times

WASHINGTON — The heads of Detroit’s Big Three automakers and the United Auto Workers union testified Tuesday before a Senate committee that the domestic auto industry could face collapse without an emergency infusion of federal funds.

And at least one automaker offered information that its liquidity problem was worse than it had said previously.

The remarks prepared for the Senate Banking Committee were part of an appeal by the three chief executives, Rick Wagoner of General Motors, Alan Mulally of Ford and Robert Nardelli of Chrysler, to get $25 billion in loans to keep them operating.

In their comments, the executives said the need for help stemmed from the current financial turmoil, and not from poor management. And they pointed out the danger to the American economy of a collapsing auto industry.

“We are asking for assistance for one reason,” Mr. Nardelli said, “to address the devastating automotive industry recession caused by our nations’ financial meltdown, and the current lack of consumer credit, which has resulted in the critical lack of liquidity within our industry”


Read more: http://www.nytimes.com/2008/11/19/business/19auto.html?_r=1&hp

[nykym]

1. I would like to know

just what they need the money for? Is it the result of poor decision making while diversifying into credit markets, investments TV/Cable etc,or is it really about lackluster sales LOL.

[Idealism]

2. My understanding is

that because of the market collapse, loss of confidence, lackluster sales due to fear of these corporations solvency, and high barriers to trade into foreign markets- these companies are burning through cash at a frantic pace. Tarrifs for our domestic automakers to sell a vehicle into Japan is 28%, into China its 24%. These are the 2nd and 3rd biggest market in the world for automobiles, respectively, and we cannot break through the barrier because of the 'free trade' policies of our government. Conversely, anyone shipping cars from overseas into this country pay only 2% taxes on the vehicles. Add in the higher cost of labor in this country than the slave labor they pay overseas workers and little if any benefits, and you can see why our automakers are natually at a disadvantage.

[Raschel]

3. I'm going to copy and save your response. I believe that is so accurate.

For our government to give taxpayer money to banks, insurance and credit card companies while turning up their noses at US producers is an indication of how out of control our "leaders" are.

The money that President Paulson handed out isn't even being accounted for while industries that provide jobs for us are begging on Capitol Hill.

And what the heck happened to helping taxpayers with mortgages?

[Idealism]

4. Thats the reasons I understand them

It may not be all of the problems, theres no doubt a few points I have left out.

[sarcasmo]

12. Make no mistake it's about destroying the Union, just like Ronnie Raygun

did with the ATC, another year of Bush and the UAW would be finished.

[blue_onyx]

7. Another disadvantage for our automakers ...

Other countries limit the number of vehicles our companies can sell in their countries. For example, our Governor mentioned in her 2006 re-election campaign that Korea limited the number of vehicles US auto companies could sell in their country in 2005 to 4000. Yet we allow their companies to sell as many cars as they can here in the name of "free trade." Not exactly fair is you ask me.

[lithiumbomb]

15. GM has a pretty large China presence

Unfair trade is obviously a problem, however despite that, and with a fairly large manufacturing base in China, it sold about 600k cars in China in the first half of 2008. Nearly all of the Buicks sold in china are locally made (about 300k/year). Some of the Chevrolets might be. The rest are imported. IIRC.

[tclambert]

10. Car sales plummeted in October, directly attributable to national financial meltdown

Sales in October went down 30% - 45% for the Big Three. That's not due to quality or management or labor costs. It is because people buy cars with credit. And people buy cars when they are confident they will have a job and income for long enough to pay off the car loan. There's an old saying, "When the economy catches a cold, the auto business catches pneumonia."

[blue_onyx]

5. I hope the companies get the bailout

The auto companies' biggest problem is that they can't get loans. The reason they can't get loans is because of the credit crunch created by the financial institutions that we DID bailout. On top of this, consumers can't get credit to buy vehicles. So the auto companies can't money through loans and can't get money by selling their products. I don't how we can bailout the companies that caused this credit problem but not the companies who are suffering because of the problem. If the auto companies don't get the loan and have to go bankrupt, I want every damn cent of the bailout given to the financial institutions taken back.

[Idealism]

6. Which is another problem

Even if we don't bailout these companies, they will go into bankruptcy. That much is obvious. What isn't talked about is what type of bankruptcy it will be. If we can't throw them a lifeline, and the credit markets remain as frozen as they are, it will be Chapter 7 bankruptcy (not Chapter 11). Which means total liquidation, the brand will cease to be, lock the doors and turn out the lights. No restructuring or reorganization possible because there isn't anyone to loan them money while in the reorganization process. It would mean total devastation to the last vestige of manufactoring we have in this country, automakers and suppliers et all.

[amandabeech]

8. In addition, today Chrysler's CEO Nardelli testified that when Chrysler was sold to Cerebus,

a private equity firm, and went private, its sales nearly instantaneously went down 37%. The change in ownership was the only big thing going on.

Imagine what would happen if Chrysler went into bankruptcy, whether debtor-in-possession financing was available or not.

It may very well kill all three domestic producers.

[Idealism]

18. It most likely will kill any sales the brands have

No one wants to buy a car from a company who will be liquidated. Good luck getting serviced under warranty from that mess.

[Moosepoop]

9. Nice try, misters Wagoner, Mulally, and Nardelli

Yes, the current financial meltdown and consumer credit freeze are indeed major causes of the auto industry's crisis, but so is the poor management of your companies for some time now. Any help you receive should involve a loss of control and compensation on your parts. You know this, which is why you are trying to preempt any such conditions by announcing (with your hands out) that it isn't your fault at all. Bullshit.

[MJJP21]

11. Regardless

of the ineptitude of the US car mfgs the stark reality is that they are big business, they employ a lot of people, and a lot of people still drive american made cars with lots of parts that need to be replaced and lots of warranties that need to be serviced.
You also need to cut them a break this one time as Toyota and others would not be in business were it not for the Japanese govt proping them up. Toyota started out as a textile co.

[raccoon]

17. One time? Didn't all this happen in the 1970's? Some people never learn. nt

[Idealism]

19. When we issued private loans to Chrysler

a few decades back they payed the loan in full plus interest before the given time, so I'm not sure of your point here

[raccoon]

21. Back then they weren't producing what people wanted to buy, so their sales fell off.

Deja vu all over again.

[sarcasmo]

13. Bad loans weren't the banking industries fault?

[Idealism]

20. A default on a car loan doesn't lessen the value of an entire model of cars

look at it that way. Thanks to collateralized debt obligations and securitizing debt, one bad mortgage ruins the value of entire bundle. Not so in this industry, so yes they were the victim in a sense, notwithstanding some poor managerial decisions.

[Diane Tucker]

14. Insider talks about the auto industry

For an insider's take on the U.S. auto industry situation, here's the link:

http://www.huffingtonpost.com/diane-tucker/journalist-to-gop-youre-1_b_144481.html

[raccoon]

16. So why didn't the arrogant management of the Big 3 think of all these job losses when

they were building SUV's and Japan was designing and building hybrids?

Can you say, "Greed and arrogance," boys and girls? I knew you could!

They don't give a hoot in Hades about the workers, just their bloated salaries and bonuses.

If they get loans from the feds, top management should go.

[customerserviceguy]

22. They'll go

and they'll take their golden parachutes with them.