Will the Bailed-out Automakers be Back for More Money?

As I write this it looks like the US automakers bailout (or rescue plan) is a done deal. Bloomberg reports that Congress and President George W. Bush are negotiating the final details of a $15 to $17 billion measure to fund the automakers till the new Obama administration is in place.

Some finer points from the news reports on the bailout, which suggest the US automaker bailout/rescue saga still has a way to go in 2009, are:

– About $10 billion more in aid may be needed to keep the companies operating through March, which may require access to the $700 billion financial-rescue package (TARP). GM requested a second $4 billion loan by January in addition to an already requested immediate $4 billion rescue payment. The firm now wants a total of $12 billion in short-term loans and a $6 billion line of credit. Ford wants a $9 billion line of credit and Chrysler says it needs $7 billion by Dec. 31. Restructuring plans would be due by March 31 to avoid defaulting on loans.

– Their is a proposal to create a “financial viability adviser” or auto czar within the U.S. Commerce Department that would be responsible for helping automakers achieve a plan for long-term financial success. The adviser could provide financing to an automaker to keep operating for no more than three and a half months. The financing would be supplied only if the adviser concludes the automaker would otherwise go bankrupt.

– The rescue plan as outlined may do little to revive auto sales, which exceeded 15 million a year from 1996 to 2007. U.S. sales probably will total 13.3 million in 2008, Standard & Poor’s said on Nov. 24. Annual totals may not reach 13 million over the next four years, according to GM’s worst-case scenario.

– “If one of us goes in, it has the potential to take all of us in,” said Ford CEO Alan Mulally when asked whether the failure of one of the Big Three could result in the demise of its competitors. The US automakers and their supporters estimate 3 million jobs could directly be affected by the collapse of one or more of the automakers.

There are various
pros and cons to the US automakers bailout as I wrote earlier, but for now it looks like they are here to stay. It will be interesting to get your viewpoint as to where the automakers will be headed in 2009. Will they come back for money, Survive and thrive in their current form and payback all the loans or go into bankruptcy or some kind of merger proceedings. Either way, we have only completed act one.

Related Posts:
The Next Economic Stimulus Payment
Why the US dollar is Rising and 2009 Outlook
Bailout Nation and Future Impacts

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