GM, Ford And Chrysler Bail-out Imminent, US Government To Go Into Car Making Business Photo:
Tim O'Brien | Dec, 09 2008 | 4 Comments

So, after three days of talks between Congressional Democrats and the Bush administration (still quacking, but one of the lamest ducks in the history of the species), Reuters is reporting that it has obtained a copy of the draft bill that is going to "save" US automakers.

"Save", in fact, might be too strong. Such is the scale of the mess the US car companies have gotten themselves into, the expected USD$17 billion aid package will only temporarily keep their heads above water. It will however stave off the imminent total collapse of one or more of the 'big three' until the incoming Obama administration can really deal with the issue.

So think of it as a brick under the wheel of an industry on a very slippery slope.

best-western-capitolThe big news emerging from Washington however is that the US Government is now about to find itself in the car making business. (Now there's something to have Henry Ford turning in his grave.)

The legislation is expected to put the companies under tight Government control and supervision in return for the taxpayer-funded bail-out.

As reported by the New York Times (8/12), Congress is expected to recommend the establishment of "an oversight board" headed up by an independent "Car Czar" and with five cabinet secretaries and the head of the US Environmental Protection Agency supervising the progress of the reorganisation plans proposed by the car companies.

With GM on the brink of collapse, Chrysler in a wilderness of its own making, and Ford a little better but also haemorrhaging billions, the car companies will not be in a position to argue the toss ? it really is a case of "beggars can't be choosers".

Furthermore, the legislation is expected to give the Government, and thus tax-payers, an equity stake in the companies, impose strict limits on executive pay (and a ban on stock dividends) and impose stringent reporting requirements against the plans proposed by the companies and agreed by Congress.

"If the companies fail to develop a plan that will lead to long-term competitiveness, profitability, if they fail to stick to that plan, the loan can be recalled," Senate Majority Leader Harry Reid said (Reuters).

(Can't help but think this has disaster written all over it. Why am I suddenly thinking about 'Homer's dream car'?)

rick-wagnonerThe knives are also out for GM chief, Rick Wagoner. Some are suggesting that his resignation be a condition of GM receiving support.

To these eyes though, while GM is in the shakiest position and literally at the door of bankruptcy, its size might save it ? it is simply too big to let fall (or so a Democratic Congress will likely decide).

Chrysler though is not. And, having been bailed out before is less deserving of continued taxpayer support. My guess is that, in six months, Chrysler will no longer exist as an entity, but will be broken up and sold: part of it subsumed into GM, other parts sold to a cashed up China and India.

2008-fg-falcon-xr6t-001What all of this might mean for GM-Holden and Ford Australia is uncertain. It perhaps puts the G8 on shakier ground. There will be massive job losses in the US irrespective of the bail-out. These, combined with Government involvement in decision making and, one can assume, product planning, will make US GM import programs harder to justify to bruised US taxpayers.

It will also mean that Ford Australia, as we've previously commented, will have to finance development of new models from within this market. With barely 10 percent market share, that's not going to be easy.

Keep watching, the next news will be big.

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