Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Auto Bailout Still Has to Get Past Senate


Political debate heats up over rescuing Detroit.

Here we go again.

It all sounds eerily familiar: Old, white guys getting harangued on Capitol Hill as they beg for billions to save their dying industries. The House of Representatives, in its infinite benevolence, offers up a rescue package at the 11th hour. Sure, there are strings attached and it's a far cry from what the old white guys asked for, but hey, this is Washington.

Last night, House Democrats hammered out a $15 billion rescue for the General Motors (GM) and Chrysler, allowing the struggling automakers to draw on emergency loans to avoid imminent collapse. Their fate now rests in the hands of the Senate, where the financial system bailout met stiff resistence just months ago. Act II is playing out just as you'd expect, with Senate Republicans vowing to block the House's bill.

The rationale, again, for handing out billions of dollars in taxpayer money is to ostensibly save the American economy from sort of alternative too terrifying to imagine. As John Dingell, a Democrat from Michigan told Bloomberg, "Without this bridge, we're going to fall into the biggest calamity this country has known since the Great Depression. A terrible disaster looms."

The money is meant to keep the 2 firms alive (apparently Ford (F) isn't sick enough to be bailed out, yet) until restructuring plans can be drawn up and approved by the soon-to-be-appointed "Car Czar," who will oversee an overhaul of the 2 firms.

Taxpayers could receive stock warrants for as much as 20% of the amount of the loan, which in the case of GM means Joe Taxpayer will own almost the entire company. Still, the bill could die in the Senate as House Speaker Nancy Pelosi claims her brethren won't come back to the negotiating table if the Senate passes a materially different bill.

What a mess.

Proponents claim allowing the automakers to go bankrupt is foolish, risking millions of American jobs while they've provided a workable alternative.

Opponents to the bailout on the other hand, contend the rescue simply delays an inevitable bankruptcy filing and complete restructuring.

One contentious issue (of many) is whether or not consumers would buy cars from a bankrupt automaker. As I wrote last month, if American Airlines (AMR) and United (UAUA) could fly planes through Chapter 11, Detroit can certainly make cars during bankruptcy.

And a marked difference between the environment in which this bailout is being debated versus the one for the financial system, is the election. Now that representatives know their fate and no longer have to pander for votes, they're much more likely to play political hardball.

This doesn't bode well for Detroit.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opin= =3D =3D3D ion about the performance of securities and financial markets by = the wr=3D iter=3D3D s whose articles appear on the site. The views expresse= d by the wri=3D ters are=3D3D not necessarily the views of Minyanville Medi= a, Inc. or members=3D of its man=3D3D agement. Nothing contained on the web= site is intended to con=3D stitute a recom=3D3D mendation or advice address= ed to an individual investor =3D or category of inve=3D3D stors to purchase= , sell or hold any security, or to =3D take any action with re=3D3D spect t= o the prospective movement of the securit=3D ies markets or to solicit t=3D= 3D he purchase or sale of any security. Any inv=3D estment decisions must b= e made =3D3D by the reader either individually or in =3D consultation with = his or her invest=3D3D ment professional. Minyanville write=3D rs and staff= may trade or hold position=3D3D s in securities that are discuss=3D ed in = articles appearing on the website. Wr=3D3D iters of articles are requir=3D = ed to disclose whether they have a position in =3D3D any stock or fund disc= us=3D sed in an article, but are not permitted to disclos=3D3D e the size o= r direct=3D ion of the position. Nothing on this website is intende=3D3D d = to solicit bus=3D iness of any kind for a writer's business or fund. Mi= ny=3D3D anville mana=3D gement and staff as well as contributing writers wi= ll not respo=3D3D nd to em=3D ails or other communications requesting inves= tment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos