Detroit Automakers One Step Closer to Being Saved

Congress and the White House have come to an agreement on the proposed plan from the Detroit 3 for financial aid during these troubled times that the three automakers have been experiencing due to the current economic crisis. The current $15 billion bailout proposal already has most of its major points agreed upon and is now on its way to the Senate and House of Representatives.

The $15 billion plan will provide General Motors and Chrysler low-interest loans that should help the sustain the two until somewhere near March next year. Ford on the other hand will not be taking any loans until its financial situation worsens. The funds will most probably be drawn from a fund established earlier in the year by the Energy Department.

One of the conditions required in the financial aid proposal is that the President will appoint a person to oversee all the restructuring and management of the companies to ensure that all the plans submitted to Congress will indeed be followed and that the changes proposed will be made. The elected person will hold the power to give recommendations and direction during this critical period, and should these be ignored, the financial loans could be withheld or postponed. Bankruptcy could also be on the cards if so recommended, a move strongly in favor of by the Republicans.

Interestingly, the owners of Chrysler, private equity firm Cerberus Capital, were not required to be held accountable for the loans, should they be approved to Chrysler. This would mean that if Chrysler were to cease operations and fold, Cerberus would not have to repay the federal loans and that would be the last we will see of all that taxpayer money.

The bill will now have to pass through the Senate and House of Representatives before any of these federal loans can be approved. Even with their approval, possible lengthy legislative procedures might mean that it could take some time for GM and Chrysler to see any cash flow into their accounts.

Should The Big 3 Be Rescued?

The current state of the economy has left the US automotive industry in dire straits and the Big 3 have been crying out for help from the U.S. government to the tune 25 billion of American taxpayers' dollars. Eric Reguly from Globe and Mail [via Paultan.org] argues that GM, Ford & Chrysler should be left to crumble and then rebuilt on their own efforts.

In his article, Eric points out that the root of their problems stemmed from general laziness and mismanagement from the automakers, hence the reason they should not receive any funding aids at all. He also points out that they have already been exploiting the U.S. government for decades through CAFE - the Corporate Average Fuel Economy standard. In exploiting the CAFE, the Big 3 have been able to use the CAFE loopholes to sell massive cars at extravagant prices without having to be accountable or responsible, in a manner that other European and Japanese manufacturers without federal help had to achieve by creating essentially better cars in terms of quality & fuel economy, amongst others.

Now that petrol prices have risen substantially and sales figures of these gas-guzzlers have plummeted in favour of better cars by their competitors, the Big 3 are once again going back to the government for rescue, which is something they already expect. However, since automakers around the globe are also facing similar issues, would it mean that every manufacturer should receive some from of financial aid or subsidy from their respective governments?

I definitely agree with Eric when he says that the Big 3 have fallen into this pit due to their own actions. I strongly agree that the Big 3 are lazy and as a result they should have to overcome this situation on their own. How much longer can GM continue to pull the wool over their customers' eyes by introducing "new and improved" models which are actually just rebadged models to begin with, i.e. the Chevrolet Lacetti made famous by Top Gear UK in the Star In A Reasonably Priced Car segment is in fact a rebadged Korean Daewoo model. Similarly, the most recent Pontiac GTO model is in fact just a rebadged Australian Holden.

The respective CEOs from GM, Ford and Chrysler will be meeting with Congress again tomorrow with to elaborate on the plans they submitted detailing how each manufacturer will be using their cut of the financial aid, alongside the president of the United Auto Workers (UAW) Ron Gettelfinger. The UAW is also planning to contribute by possibly eliminating the Jobs Bank, which is a highly controversial program that allows laid off workers to receive up to 95% of their basic salary. Once again, this only seems to demonstrate the level of laziness that the American auto industry in shrouded in.

We can now only wait to see how Wagoner, Mullaly & Nardelli will present their detailed plans to Congress. Rest assured though, that after the personal jet fiasco of last time, all 3 CEOs will be driving to D.C. this time around.

Have a look at the plans submitted by GM, Ford & Chrysler and have your say in the comments.

[Source: Globe and Mail, Automotive News, Paultan.org, Autoblog, press releases]

Exclusive Marques Feeling the Economic Crisis

Now that it is official that the economy is now in recession, the auto market across the globe is now in turmoil, especially in the US. The Big 3 (GM, Ford & Chrysler) have yet to close the deal for its financial bailout, and it seems that the situation is very dire for the Americans manufacturers. Ford, for instance, recently sold off its stake in Jaguar and Land Rover to Tata, and even the controversial sale of Aston Martin which was thought the only profitable arm under Ford at that time.

However, news has arrived of layoffs at Aston Martin, which shows that despite the popularity of the DB9, the British marque is also suffering from drops in sales. AM have announced that they will be cutting off 600 jobs to save costs and will be working closely with the unions to reduce the workforce.

Even Bentley, who hit record sales in 2006, are also experiencing issues and have already cut their production figures by 15% in response to the drop in sales. Bentley are working closely with their dealers through these difficult times but we can expect more layoffs from the brand as well.

Only time will tell how the automakers will continue to respond to the recession but cost cuts seem to be the only way forward. The most evident of this would certainly be the absence of several major brands in the Detroit Motor Show this year. We can only hope that these big brands will pull through this crisis.

Feel free to have your say in the comments section.