Taxpayers nearly mounted a revolt in September when Washington proposed a bailout of the nation's financial system. What will be the reaction to a bailout of struggling U.S. carmakers?
All three -- Ford, General Motors and Chrysler -- are in a bad way, as a major contraction in the U.S. economy is keeping consumers out of new car showrooms. Even if they were willing to buy a new car, many consumers can no longer qualify for loans in the post-subprime environment.
President-elect Obama has made it clear that his administration intends to do something to help carmakers stay afloat. Having the Governor of Michigan on his economic transition team is a pretty strong clue. Lest there be any doubt, he spelled it out in his first news conference as president-elect on Friday.
"I have made it a high priority for the transition team to work on additional policy options to help the auto industry adjust," Obama told reporters.
Last week made clear just how much "adjustment" the car companies need.
Ford posted a third quarter loss of $129 million. GM's results were even worse, running up a $2.5 billion loss. The nation's largest carmaker has now lost $57 billion since 2005.
What kind of help is the automotive industry seeking?
All three are reportedly seeking a total package of $50 billion in federal loans; $25 billion would cover their health care costs while the remainder would go for day-to-day expenses.
$25 billion already
Largely unnoticed in the current discussions is a $25 billion guaranteed-loan program that's already in place. Administered by the U.S. Department of Energy (DOE), it's intended to help automakers produce more fuel-efficient vehicles.
Already, critics are saying the program doesn't do enough to protect taxpayers.
"The auto industry allowed itself to get into this predicament by fighting against every attempt to improve the fuel economy of its fleets. Instead, the industry was intent on producing the biggest, most impractical, least fuel-efficient vehicles it could," said Joan Claybrook, president of Public Citizen.
"Each year, automakers raised the level of ridiculousness even higher, turning out an even larger version of last years fuel-guzzling sports utility vehicle or light truck," Claybrook said.
Claybrook said DOE should not provide loans to upgrade plants that produce performance vehicles.
"Producing a more fuel-efficient, luxury sports car is akin to providing an alcoholic light beer. It makes no sense," she said..
"The federal government is giving automakers a chance to save themselves," Claybrook said. "In return, the industry has a responsibility to the public - one it can fulfill by not forcing more of these unsafe, gas-guzzling SUVs and light trucks on the American motorist."
No slack for customers
While the automakers are seeking help from the government, they don't appear all that willing to show flexibility to their customers. At least, that's the experience of Mitch, of Port Washington, New York, who says he has a business with three leases through Chrysler Financial.
"I have been a customer of theirs for over 15 years. Currently I have three leases with them and have always been on time," Mitch told ConsumerAffairs.com. "Business has gotten pretty bad over the last few months so I called and asked them if I can get some relief on the lease payment or back end the lease. They said no."
If you ask Mitch, Congress should not approve any bailout for Detroit.
"Let them go out of business," he said. "I don't want my tax dollars keeping them alive!"
But despite Mitch's plea, a taxpayer bailout is an almost certainty.
In fact, Senate Majority Leader Harry Rein says the Bush administration should act immediately to extend aid to American automakers, and not wait for Obama and the new Congress to take office.
Not only are thousands of union jobs at stake, with perhaps millions of other jobs in related businesses riding on the fate of carmakers, a larger issue is at play.
Wall Street maven Jim Cramer pointed out last week that billions of dollars in auto loans have been securitized and sold, much as subprime mortgages were. They are spread throughout the world financial system. To let them go down would set off the credit crisis, phase two.
As Yogi Berra once said, "it's dj vu all over again."
