(Barack Obama says "Stop!" the sorrowful state of the Detroit Three!)
The Detroit News reports today (8-27) that long-time US Senator Carl Levin (D - MI) has gone on-record at the Democratic National Convention in Denver, telling reporters there he is working to win passage of a roughly $50 billion package of government-issued loans to assist the Detroit Three automakers. That's right, Fifty Billion Dollars. As the late Illinois Senator Everett Dirksen was purported to have said, "A billion here and a billion there ... Pretty soon you're talking about some serious money."
If the funds are government-issued loans, the Detroit Three would be able to borrow the money at the lowest possible interest rates, something their sub-investment grade credit standings would not allow in the open market. These direct loans would be payable over 20 years and the government could opt to defer all payments on the loans for five years. The favorable interest rates will save them $100 million on every $1 billion they borrow.
But the day after Levin's talk with reporters, GM's executive in charge of North American product, Bob Lutz, said his company would welcome "loan guarantees," similar to the ones which saved Chrysler in 1979.
I spoke with Jesse Snyder, a long-time reporter and Online Community Editor for Crain's Automotive News weekly, and he told me that there's "a fine haze over the entire question (of whether the funds, if any, would be direct loans or loan guarantees). Levin has proposed $50 billion in direct loans from the government. I think of it as the opening bid."These days, that’s an offer they literally can’t refuse.
The proposal has been backed by Barack Obama. It would cost taxpayers $7.5 billion to guarantee the loans. (Robby Gordon has successfully raced this Hummer off-road truck in endurance events like the Baja 500; Gordon told us that this particular Hummer is worth north of $2 million)
The pain of high gas and diesel prices is most acute at the Detroit Three, but even mighty Toyota is affected. The soaring cost of steel has that company considering raising prices in Japan without a model makeover for the first time in three decades, the Japanese automaker said Wednesday. Speculation has been that Toyota will be forced to announce higher prices in Japan - a move even Toyota acknowledges could be critically damaging for an already sluggish Japanese market. Nissan Chief Executive Carlos Ghosn has hinted he is waiting for its bigger rival, Toyota, to take the lead to make it easier for others to follow suit.
Jack Hoogendyk, a Michigan state lawmaker from Kalamazoo, and Levin’s Republican competition for his senate seat, supports a program authorized in last year's energy bill which OK'd up to $25 billion in loans to the automakers over five years -- a program that would cost the public $3.75 billion. But Congress has yet to provide any money to actually fund the program and the White House hasn't said if it would back the effort. (Ford just sold-off Jaguar, whose short-lived Formula One team didn't fare much better than its parent company is doing now)
These loans differ from the government help given Chrysler in 1979, when the company seemed destined for bankruptcy. What saved Chrysler was not an infusion of government money, as Levin is now working for, but $1.2 billion in loan guarantees provided by the federal government – so successful was that timely injection of cash that the company paid all their loans back, and early. Because of that success, the program to save Chrysler didn't cost taxpayers a penny.
That kind of luxury doesn’t exist for the Detroit Three today.
Click below for much, much more on a possible $50 billion tax-payer-backed program to save the Detroit Three.
(How bad were Chrysler's cars between 1975 and 1985? Take a gander at these 1984 VIP sedan and limousine versions of their K-car; Lee Iacocca buddy Kirk Kerkorian bought a bunch of them for his MGM Grand and other hotels in Las Vegas)
Should Chrysler, or two of the car-makers or even all three go bust, then the American people will pay the price, both literally and figuratively.The real and extended damage to the nation’s, and the world’s, overall economy will come from the closing of thousands of small, medium and large supplier companies in the US, car-maker suppliers which employ hundreds of thousands of American workers, many of them union.
It’s several months until a new team comes on-board in the White House (with hope that the post of Chief of Staff to the President will not filled by the former chief lobbyist for General Motors, like Andrew Card was for Bush), but the problems of General Motors, Ford and now-privately-held Chrysler can’t wait even that long.
Recently, all of the Detroit Three have gone to extreme lengths to raise cash.
Ford sold their sizable interests in both Range Rover and Jaguar to India’s Tata, and it’s possible that at least some of Ford’s more-than-30% interest in Mazda might also be up for grabs for the cash it could generate for FoMoCo. Another of Ford’s European holdings, Volvo, is doing fairly well, but even if they were selling all the cars Volvo could make at their string of dealerships worldwide, the value of all that would be only a fraction of the kind of money Ford needs to survive. (Here's a 2003 Hummer H2, built by AM General for GM, which bought the Hummer brand and name in 1999)
Chrysler is now shopping-around their Dodge Viper “brand,” including the car itself and all its ancillary products, such as spare parts, machining and tools, body panels, engines and engine blocks and the brand’s entire heritage and image. So we might see future versions of the Viper made by one or even several different companies, much as the Studebaker Avanti has been regularly resurrected by more than a few companies, many of which failed (as of 2007, Avanti Motor Corporation was offering coupe and convertible versions of the car, built at a plant in Cancun, Mexico).
Recently, GM started quietly taking bids on their Hummer brand. AM General of Mishawaka, IN, (love that city’s name, by the way – it even sounds tough!) still makes HumVee vehicles for the US military and is an off-shoot of the old car-maker Studebaker and one of the last vestiges of American Motors. They’ve made over 200,000 HumVees for the US military and for clients in over 50 other countries. HumVee and even parts for HumVees can’t be sold to any entity without US government approval. HumVee, incidentally, stands for High Mobility Multipurpose Wheeled Vehicle. (Ford's 2003 Mustang SVT was all about horsepower; now their Special Vehicle Team has been disbanded for the most part, the company needing to concentrate, finally, on high-mileage cars and trucks for their US buyers).
In 1999, AM General and GM agreed to jointly pursue product, marketing and distribution opportunities for Hummer. GM acquired the exclusive ownership of the Hummer brand name worldwide and the original civilian Hummer was renamed the Hummer H1. Since 2002, AM General has produced the Hummer H2 for GM; the new Hummer H3 is built at GM’s gigantic Shreveport, LA plant alongside the Chevrolet Colorado and GMC Canyon pickups (they share the GMT-355 platform). GM has responsibility for marketing and distributing all Hummers. I once drove past that Shreveport plant on I-10 very late one night, and when you come upon the plant, rising from the black-as-night bogs, swamps and kudzu vines of the Bayou, it's the closest thing I've yet seen which approximates the visiting spaceship in Close Encounters of the Third Kind.
And now all that is for sale.
How do you feel about loaning money directly from the federal government to these three car-makers, rather than loan guarantees, as was done with, and which saved, Chrysler in 1979? Is there another way to keep these companies open and their people working instead of long-term government loans? A bond sale? GM stock is under $11 a share and Ford is less than $5. Should Chrysler’s owner, Cerberus, try a new stock offering, an IPO, and become a publicly-owned company once again?
All ideas and brain-storms are more than welcome. It’s clear, as it’s been for almost the past 30 years, that the professionals who run these places haven’t been able to manage very well on their own.
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