06 Aug Will The Government Bail Out The Big Three? What About You?
This week, Presidential Candidate, Senator Barack Obama, stated that the Big Three Automakers, Ford, General Motors and Chrysler, would probably need an infusion of about $4 billion to build the cars that Americans will need in the future. The Senator was correct in that a cash infusion is necessary and he may even be correct on the amount of money necessary for research and development; however, he is mistaken in how much will be needed to help the big three survive long enough to build those cars of tomorrow. So the big question is: Will the Federal Government bail out the Big Three Automakers? Or, will their inability to operate profitably be thrust onto the backs of the American taxpayers?
In the second quarter of 2008, GM and Ford posted combined losses of over $24 billion. Sure, you can say whatever you want about statistics, write-downs and accounting procedures, I will agree that the number may be higher due to these items. Let’s say $10 billion off the mark. Would that be fair to GM and Ford? So, now these two huge automakers are only bleeding somewhere over $14 billion a quarter. Yea, that sounds much better. Chrysler could not renew all of its short term debt, thereby leaving a gap of $6 billion on the table. Have you seen their stock prices lately? As a side note, their stock, credit worthiness and heartbeats are also being downgraded by every big and small ratings agency in the world. The only other entity that can lose money faster than these entities and still stay in business is the Federal Government.
In the year 2008 when your company is hemorrhaging cash, and you can no longer borrow money on the open markets without selling your soul for a decent interest rate where do you go? Well, before 2008 that would have been a tough question: Maybe Japan, China or the Google Guys have the liquidity to bail the big three out, but in 2008, you just call your local representatives and put pressure on the Federal Government for a Bailout Loan. Since the beginning of 2008, the Federal Government has bailed out Bear Stearns, Fannie Mae and Freddie Mac. What’s another $20 billion, $30 billion, or $40 billion of taxpayer money? What the heck, make it $50 billion. I just hope that we are charging the big three more in interest than we are paying in interest to the Chinese. If not, that would be really sad. Even sadder is that the Federal Government keeps borrowing money and trusts that the average American worker will keep paying taxes, but is having a real hard time helping those same workers save their homes. Where is the Federal Government Bailout for the Little Guy?
Interestingly, if the Federal Government made cash available to the big three automakers, what would the big three do with the money? Obviously, we would want them to invest it in research and developement, right. But, I think the smart money would be on them reducing their short term debt and restructuring their long term debt and credit lines. Why not, they would be getting Federal Government backing. This way they would have additional opportunities to keep borrowing money and operating inefficiently, rather than finding a way to operate profitably.
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