The Big Three Automakers Ask Uncle Sam for Help

The Big Three automakers – GM, Ford, and Chrystler – have warned that their ragged financial state could cause them to fail within the next year, if not within the next weeks. Their demise could lead to a collapse of the entire auto industry. If these three automakers fail, the U.S. economy could lose up to 2.5 million jobs, estimates Associated Press. So, the three have joined together to petition lawmakers for bailout of $25 billion.

Chief executives blamed credit problems and decreased SUV and truck purchases as the reason for their problem. Rep. Michelle Bachmann, in a statement to Congress, points out that foreign manufacturers operating in the U.S. – Toyota, Honda, and Nissan – have remained profitable despite the crisis. She suggests the companies instead restructure their debts under Chapter 11 bankruptcy. A bailout, she says, won’t fix the companies long-existing systemic issuers.
While they claimed the companies were struggling and on the brink of bankruptcy, the chief executives this week arrived at the Washington hearing held to discuss the bailout in multimillion dollar corporate jets. Hardly the choice of transportation for a near-death auto manufacturer. That decision has many skeptical about whether the companies actually need a bailout and whether they would spend it wisely.

Whether the bailout would actually help the auto industry is questionable. IndyStar reports deeper problems with the way the auto industry is structured. For example, high costs of pension and health-care benefits contribute to the companies’ high overheads. Left unsolved, these problems could lead to bankruptcy, bailout or not.

Lawmakers won’t vote on the bailout until the automakers return with a plan for how they’re going to spend the loan money. If approved, the bailout won’t come from the $700 rescue plan approved for banks earlier this year. Instead, the Bush administration recommends spending from a pool of funds that’s dedicated for more production of more fuel-efficient cars.
The government has already spent or promised to spend nearly $1.5 trillion on bailouts. Where will the line be drawn?

The Big Three have until December 2 to come up with their plan for spending the $25. Then, Congress would meet on December 8 to make a decision.