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Bailout for Fannie, Freddie... and GM?


Automakers ask for $50 billion in government aid.

Hey, buddy, can you spare a few billion?

Robert A. Lutz, vice chairman at General Motors (GM), says automakers deserve as much as $50 billion in government-backed loans needed to build the fuel-efficient cars buyers now demand.

He says government action is necessary because tight credit markets make it impossible for automakers to raise the money on their own.

Critics call it a bailout. Whatever you call it, the money, if it flows, is likely to mean a greater role for government in auto production. Washington now mandates safety and fuel efficiency standards.

Pouring big bucks into Detroit sure looks like what may be Uncle Sam's bailout of Fannie Mae and Freddie Mac.

The automakers, joined by Michigan lawmakers and the United Auto Workers, want Congress to appropriate $3.75 billion to back the $25 billion in loans authorized last year. They're urging Congress to act by the end of September so the money can be available next year, the New York Times reports.

Sales of once-popular trucks and sports utility vehicles have plunged as the price of gasoline at the pump climbed above $4 a gallon in most regions of the nation. In July, SUV sales were down 43% and sales of full-size pickup trucks declined 28%.

But gasoline prices have dipped. A barrel of oil recently fetched $118.18 on the New York Mercantile Exchange, about 19.75% below the peak of $147.27 reached July 11. The price rose $2.59 a barrel in early trading Friday - in part because tropical storm Gustav, now about 100 miles west-northwest of Jamaica, could disrupt oil production in the Gulf of Mexico and could slam refineries on the Texas coast.

There will be no immediate relief for the auto industry. Edmonds expects August auto sales to be down about 14.4% from a year ago. GM's sales are expected to be down 27.5%.

Detroit is retooling many truck plants to produce smaller cars. Ford (F) plans to spend $75 million to revamp a plant near Detroit. Ford makes the high-mileage Focus, but production couldn't keep up with demand. The automakers are expected to spend billions to overhaul the plants needed to produce fuel-efficient cars.

Toyota (TM) says it expects full-year profits to decline in 2008 for the first time in 7 years. Honda (HMC) and Nissan (NSANY) also have forecast lower profits as the cost of materials rise and sales slow.

Honda can quickly switch production at its plants as needed and appears well-positioned for high gas prices. U.S. drivers have long preferred larger cars and trucks, but high gas prices forced a sudden reversal: cars, not trucks now account for 60% of all sales.

Toyota is known for the Prius, a hybrid car. Honda, General Motors and Ford also offer hybrids.
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