Monday, 17 November 2008

GM lobbying hard for U.S. bailout - Wall St Journal

NEW YORK (Reuters) - General Motors Corp has been telling U.S. government officials that a bankruptcy filing by the automaker would set off a chain reaction hitting hundreds of its suppliers and dealers as well as its Detroit rivals, The Wall Street Journal reported on Saturday.

Citing people familiar with the situation, the Journal said on its website that GM's auto-industry bailout lobbying effort in Washington was reaching out to congressional leaders, the outgoing Bush White House and members of the transition team of President-elect Barack Obama, with meetings going on over the weekend.

Central to the campaign is the idea that a bankruptcy filing by GM would trigger a domino effect, potentially crippling the nation's industrial base, the newspaper said.

Detroit automakers have sought emergency assistance to help them survive a steep and worsening drop in sales that they blame on the global credit crisis and slumping economy. GM has said it could run out of cash by early next year.

Democrats are proposing a bailout of distressed automakers through $25 billion in loans from the Treasury Department's $700 billion corporate rescue program.

The White House opposes that move and says that $25 billion already appropriated for loans to make automobiles more fuel-efficient should be accelerated.

According to the newspaper, GM is arguing that bankruptcy would threaten jobs and the government's pension-benefit insurance arm, which covers millions of workers outside the auto industry, by swamping the fund and further burdening a strained federal budget.

"There is no Plan B being discussed beyond a government bailout," the Journal quoted one top GM adviser as saying on Friday. Another person close to the company said executives recently told the board they were "increasingly optimistic" GM would receive a liquidity infusion before December, it said.

GM is also flooding dealers, supplier executives, employees and union members with letters encouraging their participation in the effort, the newspaper said.

United Auto Workers President Ron Gettelfinger said in a rare news conference on Saturday that U.S. automakers urgently needed a federal loan to survive, but added their work force should not be blamed for the industry crisis.

1 comment:

  1. It looks like the folks in DC are hell-bent to give the stimulus package another try seeing as the first one didn't have any real effect.

    This time it's the car industry.

    While the sanity of blowing cash around and running the national debt up even further is questionable; it seems inevitable - so this time let's target unemployment, create AMERICAN jobs and pump up the economy all at one time.

    Consider the following:

    Manufacturing costs of motor vehicles are 65% labor (i.e.: W-2 income), that's not all direct but due to suppliers. GM alone has over 1300 suppliers. (That's a lot of jobs!)

    1 in 10 Americans makes all or part of their income due to the automobile industry.

    Money turns over 5 times in a year.
    Thus a vehicle with a manufacturing cost of 20K produces 13,500 in W-2 income which in turn becomes a total of 65K in 12 months due to the 5 turnovers.
    (This isn't magic, it's simply how the economy works.)

    Our domestic car makers are saddled with legacy costs, most of which will reduce dramatically in 2010 due to contract changes. They need to survive to get there.

    Our own over-zealous government with a virtual alphabet soup of regulatory agencies has been no help either.
    Foreign competitors have worked off-shore collectively to meet various US gov't. imposed emission and safety standards, thus dramatically reducing those R&D costs. American car companies are prohibited from that by our FTC.

    Make no mistake; it’s no surprise that once again government has been a major part of the problem.

    Here's the solution.

    Instead of either shipping cases of cash off to car makers; or sending us all another check:

    Send out a voucher for say $1,000 good on a motor vehicle for the percentage of the vehicle that's domestic. (Civic = 70% Ford Explorer=80%)

    Let those not interested in a new car sell or give away their vouchers (Ebay would be loaded with them in no time flat) and those that are so inclined can use as many as they can get their hands on up to the full MSRP of the vehicle.

    This would bail out the car industry without giving them a dime directly
    Further it would reduce the overall age of the nation’s cars which would in turn;
    increase overall fuel economy
    & decrease pollution.

    Strengthen the dollar!

    Since vehicles with a higher domestic content would be moving better this would reduce our imports, strengthening our dollar which would in turn further reduce what we pay for anything imported gas!


    Instead of simply bailing out a few big companies, this would cause such a run that it would create employment throughout the industry affecting over 1300 suppliers and their workers.
    That would give the economy good swift kick right where it needs one!

    Pays for itself!

    Since money turns over 5 times, and the vouchers are only good for the domestic content of the vehicle, every dime would be spent in the United States creating taxable income.
    What is the income tax on 65,000 anyway?
    (Remember? 20K manufacturing cost = $13,500 W-2 income x 5 = $65,000)

    Another Stimulus Package?

    I'm sure you'll agree that this makes more sense than simply sending out checks; many of which will be used to buy new flat screen TV's usually made in Malaysia or some such place.


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