The CNN Money article, House passes Detroit bailout explains what is included in $14 billion auto bailout. The auto bailout which has only been passed by the house thus far, is a strings attached quick fix till the future Obama administration can finalize a permanent solution. GM has stated that they need 4 billion or they will be bankrupt by the end of 2008 and an additional 6 billion to get the through Q1 2009. Chrysler has stated that they will need 4 billion to get them through Q1 2009. Ford has opted not to take part in the bailout. Ford seems to be in better cash shape then its competitors due to financing it has secured the past few years. By accepting the bailout the companies are agreeing to certain terms and controls.
- Limits on executive pay
- "Prohibitions for so called golden parachutes and requirements that automakers get rid of their corporate aircraft"
- No dividend payouts while loans are outstanding
- "The government would receive warrants-the right to buy stake in companies at a certain price-equal to 20% of the loans value"
- The bill provides a presidential appointee, also know as a "car czar" who will oversee the companies restructuring efforts. If the "car czar"finds that the companies have not made progress on cutting costs the loans will be recalled within 30 days, ultimately forcing the companies into bankruptcy.
This bailout seems like a quick fix, a band aid to slow the bleeding. I am normally against government and the business sector mixing, but due to the credit crunch there may not be any other options. The auto industry has begged for this bailout and due to their inability to control cash I think there should be extremely strict controls and requirements included in this bailout. The writing has been on the wall for quite some time. Competitors like Toyota and Honda who build quality, fuel efficient vehicles and manage cash a lot better have been gaining serious ground on the Big 3 for the past decade. Since there are only two options the government has to decide which one is best. Let the companies fail and see millions of Americans lose there jobs or pump cash into poorly operated companies and try to baby sit them. With our country already in an official recession if we choose not to help the Big 3 we may very well spin this recession into the next depression.
3 comments:
I agree that we might have to risk the large amounts of unemployment to avoid the distribution of money to companies that don't even make an effort to help benefit the economy and their employees. Companies such as GM and Ford consist of many employees, those of which are mostly living from paycheck to paycheck. These companies look to employ minorities in order to prosper, giving those an opportunity to support themselves but at the same time benefitting because they don't have to pay them high wages. Though you state that this will be a "quick fix", I do believe that this bailout will also have it's consequences. They are in hopes to benefit just the company, but this bailout somewhat proves that they want to aide in this foiled economy. The only problem is, which companies will this apply to: the more stable and highly-valued companies or ones that the government will continue to babysit. There definitely has to be very strict requirements and dedication to such a bill.
After reading Michael’s comment on my blog I decided to check out his page, because it seemed to me he had more understanding on the situation involving the Big 3 bailout, then I did.
In, “Is saving the Big 3 a good idea?”, he explains that the $14 billion Auto bailout has only been passed by the House so far and that it is a quick fix until the next administration can find a more permanent solution. He also goes on to explain why exactly they need that amount of money, and what the “strings-attached” really means for the “BIG 3”. These rules seem like a good start on how to control the companies from continuing down the path their going, but only time will tell if they are really looking to change or if they are just looking for free money.
Michael also writes about how competitors like Toyota and Honda have gained serious ground on the “BIG 3” in the past decade by managing their money, while still making quality, fuel efficient cars. I believe if the “BIG 3” had taken a good look and some notes from those competitors, they probably wouldn’t be in the predicament they are in right now.
In his blog he says, “Let the companies fail and see millions of Americans lose there jobs or pump cash into poorly operated companies and try to baby sit them. With our country already in an official recession if we choose not to help the Big 3 we may very well spin this recession into the next depression.” The best option for the government right now is to give the bailout, but I really hope they make the “BIG 3” change their ways and “baby-sit” them as long as needed to make sure change actually happens.
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