Big Three to Get Check From Government
Just don't call it a "bailout," Detroit says of $25 billion loan.
Sept. 28, 2008 -- It's been an expensive month for taxpayers, with a succession of Wall Street institutions seeking government help. And now, add Detroit's Big Three to the list of those in line for a bailout.
"It's a reflection of how far the mighty have fallen," said auto analyst John Casesa, managing partner of the Casesa Shapiro Group.
After years in the red, General Motors, Ford and Chrysler are now betting on green technology. The automakers hope by 2010 to replace their current losing lineup of gas-guzzlers with next-generation hybrids and electric plug-ins.
It's no small feat. Factories will have to be retooled, and that requires time, money and good credit -- three big things the Big Three lack -- and so, for the past 18 months, Detroit has been lobbying Congress for up to $50 billion in loan guarantees. Loans of $25 billion were budgeted in last year's energy bill, and this weekend Congress cut the check -- a move separate from the massive Wall Street bailout effort.
But "bailout" isn't the word automakers are using. A greener Big Three, the automakers argue, will reduce the country's dependence on foreign oil.
"It's not a bailout," said Chrysler Vice Chairman Jim Press. "It's a good investment between industry and government."
But critics of the loan plan disagree.
"Oh, I'd call it a bailout," said Peter Morici, economics professor at the University of Maryland. "[The Big Three] are having increasing difficulty borrowing money in the private credit markets because there's a high risk of default. In that environment, giving them a government loan is a bailout."
The $25 billion in loans dwarfs the $1.2 billion Chrysler bailout of 1979 and the $15 billion in direct payments and loans the airlines received after the Sept. 11 attacks.
And as with the airlines, there is no guarantee the loans will save auto industry jobs or improve sales for the Big Three.
"This is a lot of money, and it will help, but this won't save Detroit," said Casesa. "Only Detroit can save itself."