Add to favorites Examiner Bio

How will Wall Street react today to failed auto bailout?

Its Monday December 14^th, 2008. Christmas is just over a week away and 2009 is right around the corner. Judging from the mall crowds this weekend, consumers are opening up their wallets, if only slightly. But one group that apparently wont be on the receiving any of any holiday generosity is the U.S. automakers.

Last Thursday, the proposed $14 billion package to aid struggling automakers GM, Ford and Chrysler stalled in the Senate after it was passed in the House just two days earlier. The sticking points are numerous but reports indicate that concern over cumbersome union issues -the bane of the U.S. auto industry for decades - was at the heart. It is widely agreed that without a major restructuring of the Detroit Big three’s labor contracts, competing on a global scale will be difficult and failure will be inevitable.

One positive sign the day after the bill bailout failure news broke, U.S. markets ended the day up slightly. Late Friday, the White House indicated that it may step in to aid the big three by tapping funds from the already approved $700 billion dollar financial services bailout package. This came after Congressional and Senate leaders looked to table discussion on auto industry aid, perhaps until after the New Year.

Given the struggles that all three companies are facing, $14 billion is really just a drop in the bucket, especially considering the magnitude of GM’s woes alone. Ford executives have indicated that they have enough liquidity to stay afloat and apparently, any aid to the Big three would only include a line of credit to Ford, not outright cash. Speculation also abounds that Chrysler, the only privately-held company among the three, could be left out of any bailout funds and will be forced to fend for itself.  

The auto bailout talks are well beyond theater and there are real, potentially devastating consequences to their failure. But I must admit the drama is quite compelling. The latest turn of events appears to be morphing into a natural selection process where the company requiring the most aid (GM) will receive it, but probably not enough to survive as we know it. GM is a sprawling, monstrous organization and like turning a cruise ship to avoid the iceberg, much effort is necessary. The company requiring the least aid (Ford) will get just enough to stay afloat and continue restructuring itself to remain viable. The U.S.’ first major automaker has made great strides in quality improvement, product development and structural streamlining, jettisoning niche brands like Jaguar, Land Rover and Aston-Martin  and returning to its core strengths.  And the company that company that is left (Chrysler) may just have to figure things out for themselves. Aside from the 300C, Chrysler hasn’t hit a home run since the PT Cruiser and both those vehicles have waned in popularity. The Jeep brand is one potential gem, but even it needs some spit and polish moving forward.

Lets hope the White House is ready to bring Christmas a little early to Detroit.