GM, Chrysler Hit Taxpayers Up for $10 Billion
Money would facilitate merger, plant closings - and layoffs.
1. Congress pleads with taxpayers to support bailing out a troubled industry;
2. Taxpayers rightly demand to know what their hard-earned money will be used for;
3. Congress chooses expenditures that are palatable to constituents (new lending, protecting deposits, investing in renewable energy, etc.);
4. Congress doles out money, neglects to describe rationale to taxpayers.
In recent weeks, it’s become evident that the $125 billion being invested in banks isn’t likely to jump-start lending anytime soon, as we were told it would. Instead, it’s paying for mergers and executive bonuses.
Now, the $25 billion earmarked for low-interest loans to the auto industry for renewable energy projects is likewise being diverted from its proposed goal.
According to the Wall Street Journal, General Motors (GM) and Chrysler LLC are lobbying the Bush administration to siphon off a portion of the bailout money to help fund their proposed merger. Chrysler, which is majority-owned by hedge fund Cerberus Capital Management, would end up being gobbled up by GM in a complex deal that would require about $10 billion to cover integration expenses.
Integration expenses, translated into layman’s terms, means layoffs and plant closures.
To be sure, neither firm is exactly flush with cash, nor are they in terribly good standing with their creditors; the deal would help shore up the financial position of both.
Monday, Moody’s Investors Services (MCO), the ratings agency Professor Jeff Macke colorfully described as “a bunch of sub-par analysts with the ability to make press releases and the power to kill any company in America,” lowered its ratings on both GM and Chrysler. Moody’s fears liquidity will continue to deteriorate, and that both firms could face cash crunches next year.
Ford (F), the third of Detroit's 3 troubled auto-makers, has seen its debt fall well into "junk" territory, and is on review for further possible downgrades.
Chrysler, for its part, is no stranger to the government dole. In 1979, the company petitioned Washington for over $1 billion in government-backed loans to prevent bankruptcy. Touted as a success, the bailout resulted in massive losses for creditors and layoffs of around 50% of its workforce. It did, however, keep the company alive…so it could go on to build millions of gas-guzzling SUVs.
Unfortunately, economic conditions in both the auto and financial industries have deteriorated such that, without government assistance, both would be doomed to collapse. Even with government funding, however, the result may not be much different.
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=
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.