November 13, 2008

DC Auto Bailout Ideas Involve US Equity Stakes, Turn into an Early Christmas Tree

Can I have permission to utter the S-word (“socialism”)?

Ken Thomas’s Associated Press report today (link is dynamic, subject to change, and will probably be gone in a week) on auto industry bailout ideas emanating from Washington includes these items, all of which expand soc- … soc- … socialism:

  • Legislation proposed by Barney Frank involves the government taking ownership stakes in the companies.
  • Lawmakers want to use funds that were meant only for the financial sector bailout.
  • A note that the current bailout is over and above the $25 billion in government-guaranteed loans that has already been approved for “development of fuel-efficient vehicles.”
  • News that auto industry suppliers want in on the bailout action
  • The United Auto Workers wants a separate $25 billion “to help cover future health care obligations for retirees and their dependents.”

Are we having fun yet?

Here are key paragraphs from the AP story:

Democrats at work to tap bailout for automakers

Congressional Democrats are marshaling support for a rescue package to pump $25 billion in emergency loans to U.S. automakers in exchange for a government ownership stake in Detroit’s car companies.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, and Sen. Carl Levin, D-Mich., are developing legislation that would let the auto industry tap into the $700 billion Wall Street rescue money, approved by Congress last month, to fund their business operations.

….. Treasury Secretary Henry Paulson said Wednesday that the auto sector was “critical” but that the financial industry rescue was not designed for car companies.

….. Senate Republican leader Mitch McConnell of Kentucky, which is home to two Ford Motor Co. plants, was noncommittal about additional aid. In a statement, his spokesman said Congress should move to speed the release of a $25 billion loan program passed earlier to help the carmakers develop fuel-efficient vehicles

…. Frank’s legislation would carve out a portion of the $700 billion financial rescue program for the Big Three automakers, letting the government take an equity stake in them in exchange for the loans. ….

….. The car companies would face tougher restrictions on awarding pay packages to executives and dividends to their shareholders than the financial companies that get a piece of the original bailout.

Auto executives, labor leaders and other industry proponents are seeking an immediate $25 billion loan to keep the companies operating. Union officials are also hoping for a separate $25 billion to help cover future health care obligations for retirees and their dependents.

Beyond the car companies, lawmakers may hear from a broad coalition of manufacturers seeking aid. Auto suppliers, which carry a wide manufacturing presence in Michigan, Indiana, Missouri, Ohio, Tennessee and Illinois, are seeking a piece of the rescue.

An AP story yesterday evening, blogged earlier today at NewsBusters and BizzyBlog, at least mentioned, though barely, the high labor cost structure that has been a millstone around the companies’ necks for decades. This AP report has not a word.

As to Barney Frank’s ownership proposal — Fannie Mae and Freddie Mac, which Frank and his mostly Democratic colleagues allowed to fester to the point where they wrecked the economy, are known to the Wall Street Journal and yours truly as ” Barney’s Rubble” for a good reason. It is beyond me why we should rely on the Massachusetts congressman for financial advice on assisting troubled companies.

The $25 billion the UAW wants for future health care obligations has to do with the fact that it now runs its retirees’ health care. All that $25 billion will do is keep the union from imposing necessary cost-control measures on a retiree group long used to gold-plated coverage. The money won’t do a thing to develop or build a single car.

Thomas’s AP report also failed to note that:

  • The Treasury bailout, which was supposedly meant to buy up troubled assets, has instead largely been used to buy equity stakes in financial companies. This UK Times Online story reports that Paulson has now completely abandoned buying troubled assets.
  • As the beggars continue to line up and lobby hard, that same UK Times story reports that Paulson has already gone through all but $60 billion of the first $350 billion installment of the $700 billion bailout.

Soon the list of those who have not been bailed out may shorter than the list of those who have.

Cross-posted at



  1. Well, it’s not beyond me why they (libs) are considering the bailout and it has everything to do with economics. The labor movement spent, according to Financial Week, a whopping $385 million to elect Obama and other Democrats last week. Nobody writes such large checks without expecting something: now it’s payback time.
    Quid Pro Quo anyone?

    Chapter 11 Bankruptcy is the only appropriate business decision for the Auto makers to deal with their systemic problem over high costs. BUT… Those who run GM, Ford and Chrysler are also big contributors to Obama as well as the unions. Obama’s contributors gave $102k to his campaign from GM and the people at Ford gave him $112k. So from a Dem entrenched management point of view (as demonstrated by their generous giving to Obama), this is their way out of the pickle barrel for the time being. Obama has already been politely warned by the British not to engage in protectionist tactics, I wonder why? What better way than for Obama and the Dems to pass tariffs on imported vehicles and parts to pay back their contributors and allow domestic automakers to continue with a failed business model? This is how Dems get to have their cake and eat it too.

    Now did anyone consider that the reason why big business loves big government is because it is just an incestuous relationship? Where did Rahm Emanuel come from? Read it and be mad, be very mad. The whole point of what Dems do in government is to steer government money to their buddies in big business who support their campaigns with large contributions or cushy jobs between stints in government. Nancy Pelosi would be the arch typical example of this with her investments in wind energy and surprise, surprise she is pushing alternative energy and banning of oil drilling to push up the price of oil to make her investment pay off.

    Comment by dscott — November 13, 2008 @ 1:37 pm

  2. Tom, just to put a fine point on what I said, remember back to our discussion of who creates the most jobs in our economy and who is declining in proportion? That would be small business who creates the jobs and big business who loses the jobs. Now why do Dems propose taxing people making over $250k? I submit because most small businesses whom this onerous extra tax would be levied upon does not significantly financially contribute to Dems.

    Comment by dscott — November 13, 2008 @ 1:42 pm

  3. I think it would be a great idea to not give the money to the auto companies. Government should give a rebate on vehicle once a vehicle is purchased. Example $35,000.00 Chevy Tahoe list price, Manufacture Rebate=$5000.00, Dealer Discount $4000.00, Government Rebate=$4000.00. After Rebates and Discounts, Tahoe would cost $22,000.00. This way everyone would share the burden.

    Comment by tony — November 17, 2008 @ 2:17 pm

  4. Instead of giving the auto industry funds, why not use the 25 billion to give every family in America a voucher to buy an American car of their choice?

    Comment by Patti — November 18, 2008 @ 12:17 pm

  5. Agree with above comments. We should spend $25 Billion for US consumers instant rebate of $5,000 to buy fuel efficient cars (>30MPG). That would create an incentive for consumers and give Automakers enough production volume ( 5 Million cars) to survive instead of putting that money into a drain for layoff and downsize.

    It is simple, quick and effective. First come first serve!!!

    Comment by JackC — November 19, 2008 @ 1:54 pm

  6. #5, again the question is how you justify leaving out cars made in America by Toyota, Nissan, Honda, and others.

    If you lower everyone’s price by 5 grand, I believe the flight to the Japanese transplants may be great, and they will increase market share.

    Comment by TBlumer — November 20, 2008 @ 12:12 pm

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