Thursday, September 25, 2008

Pushing back the inevitable: $25 b loan to US car makers costs $7.5 b to tax payers

I am totally sick today, so I apologize if there are grammatical mistakes, but here we go!

With a price tag equal to $25 billion, the House today voted for a package of loans to help the auto industry to finance “modernization” when capital markets are tight. This has clearly fallen on the backburner of the mainstream media, but the thorough Financial Times reported promptly.

Here are some bullet points from the FT article:
  • The Senate will likely pass the package; the House voted overwhelmingly affirmative 370-58.
  • Michigan and Ohio are two swing states for the election in November. RW: It is true that Michigan’s unemployment rate was the highest across the U.S. in August with 8.9% unemployed, but still, politicking definitely played its part in this one.
  • The loan is intended for the re-tooling of plants to produce more fuel efficient cars.
  • The loans will cost taxpayers $7.5 billion since the loans are offered well-below market interest rates.
  • The loans may be allocated as soon as 2009, but not until the energy department details its regulation over qualified uses of the loans.
  • All carmakers in the U.S. are eligible, but the plant must have been in operation at least 20 years (to boot the foreign car makers from the deal). RW: What’s to prevent Toyota from buying a plant that is at least 20 years old to access the loan?

Here are a couple of clearly retarded quotes from the article:

“Shelly Lombard, analyst at Gimme Credit, a corporate bond research company, told clients this week that ‘blue collar workers are more sympathetic victims than ‘rich’ investment bankers. So it’s easier to defend loans designed to save close to 100,000 jobs in the shrinking US manufacturing industry.’”
That’s just it: The manufacturing industry – strong export growth included – is shrinking. Industry destruction is a natural process, and should not be thwarted with taxpayer dollars. Those firms that saw the wave of fuel efficiency coming (Toyota), and made appropriate modifications to their business models in time, will survive. Those who did not (GM), will not. It’s as simple as that.

And another classic:
“The Detroit-based car­makers have insisted that the loans, known as the Advanced Technology Vehicles Manufacturing Incentive Programme, are not a bail-out because they must be repaid.”
I guess that they are confused about what a bail-out is; it’s a loan! The Federal Reserve financed an AIG loan up to $85 billion. And unless I am living in an alternate universe - one in which market forces are allowed to dictate firm failures - that was a bail-out.

Rebecca Wilder

1 comment:

  1. We knew this was coming, right? The House vote is veto-proof and I bet the Senate vote will be also. Do hope Toyota will buy a 20 year old plant!! We have a 1993 Camry, 250,00 miles, and running just fine, thank you. Is the Sunnyvale (I think) plant in SF south bay from more than 20 years ago?