Will Bush auto bailout be another ineffective economic rescue tool?
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This morning, President Bush revealed plans for a comprehensive rescue package for the ailing domestic automobile industry. As DC Car Examiner Brady Holt reported , nearly $17 ½ million dollars of the recently approved Troubled Asset Relief Package (TARP) will be made available to beleaguered General Motors and Chrysler, LLC, with a majority of the funds coming available as early as this month. Ford Motor Co., which has indicated it has sufficient liquidity to survive in the short term, was not specifically provided for in the aid package. The company has, however, requested earmarked access to “credits”, should the need arise in the future.
Details of the package are still forthcoming but in early reports, notably absent are the appointment of a "Car Czar" and a required ouster of GM CEO Rick Wagoner. The rescue package is also not without conditions. Both GM and Chrysler must secure financial viability by the end of March 2009 or be forced to give back any funds received from the government.
GM and Chrysler: the latest bailout recipients
Wall Street reaction to the announcement has been mixed thus far amid likely concern that the auto rescue is
throwing good money after bad . Its the latest in a string of attempts by the Federal government to kick start the tanking economy. Earlier this week, Fed Chairman Ben Bernanke announced a
major reduction in its key interest rate to unprecedented levels. The TARP fund is set to inject over $700 billion dollars into the economy in an attempt to increase financial institution liquidity and get credit moving again. And earlier this year, several major financial institutions, including Wachovia Bank, Citicorp and investment firm Goldman Sachs were either purchased or provided copious amounts of money to keep their organizations afloat.
While it’s true that actions like these require time to bear fruit, it is still not clear that any of them have succeeded in stopping the bleeding for the long haul. Jobless claims continue to rise, consumer spending is at all-time lows and the housing market shows no signs of stabilizing. It’s an overused cliché, but what has occurred seems akin to plugging a hole in a dam while another, larger leak pops up elsewhere. Unfortunately most are predicting a protracted economic slowdown and with job uncertainty, reduced disposable income and general fear settling in, it is unlikely that consumers will take advantage of the lower interest rates and begin to borrow again, particularly for major purchases like homes and automobiles.
The auto rescue is approved - now what?
So now that the White House has agreed to keep Detroit afloat, what happens next? It is still unclear how either of these companies will translate the rescue package into reborn and refreshed organizations in the space of three months. Both GM and Chrysler, LLC have major work to do, even with their newly found government sugar daddy in place, to remain viable. GM is a massive organization that will require
major restructuring and consolidation of its operations , manufacturing and distribution network to even begin to see profits again. Chrysler, LLC, long believed to be the weakest of the big three, must not only restructure and consolidate, but must re-establish itself as a brand that’s on anyone’s radar screen. Even Ford, who declined immediate government assistance, will need to
trim more fat to keep the recovery train moving. This does not even take into account cumbersome union issues on the backs of all three companies which must be resolved.
The bottom line is don’t expect GM or Chrysler’s slide to end any time soon, and don’t be surprised to see their CEO’s
back on Capitol Hill before the end of 2009 with their hands out again.
VIDEO: View video of President Bush's announcement of the $17.4 buillion auto rescue plan
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Will Bush auto bailout be another ineffective economic rescue tool?
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