US ‘Big Three’ to secure US$15bn (A$22.4bn)
December 9, 2008 by Alborz Fallah
The current United States Federal government has reacted positively to a plan by the soon-to-be in power Democrats for a US$15-billion (A$22.4-billion) bail-out package for the ‘Big Three’ US car firms.
Sources inside the Bush administration have said that although it’s a step in the right direction, the current structure does not provide enough assurance to tax payers that only financially viable companies would get longer-term government help.
The US Government will take a non-voting stake in the three companies as part of the plan, it will also appoint a “Car Tsar” (Tsar being the Russian word for King) to oversee the money and restructuring plan, which will review each company every 45 days.
In recent weeks all three companies have pleaded with the US government that without financial help they risked collapse. The original proposal was to secure at least US$25bn (A$37.3bn) between the three of them, but congress can only justify US$15bn so far.
Political analysts say there is still unease about the plan as conditions on the car makers are not strict enough.
“I believe that viability means that all aspects of the companies need to be re-examined to make sure that they can survive in the long term. These are important companies, but on the other hand, we just don’t want to put good money after bad,” President Bush said in an interview with ABC News America.
In an unprecedented move and one that perhaps is more expected from Japanese car makers some 20 years ago, GM has began a serious advertising campaigns admitting that it had “disappointed” American consumers by letting “our quality fall below industry standards and our designs became lackluster”.
Will the billion dollar package put the American car industry back on the right track or is it simply delaying the inevitable?
Print it: 
They still have to make products people want to buy. Until that happens then they have only delayed the inevitable. I would like to see the advertising campaign about quality, have CA seen anything yet?
giving GM all this money reminds me of the movie “weekend At Bernies” !! They fool some people into believing Bernie is alive with some clever tricks and propping him up but it doesnt matter what they do he IS DEAD…..
JUST LIKE GM.
Although there is plenty of cars that interest me at Chrysler (eg, Jeeps, Charger, Pt Cruiser, 300c, etc..), in the GM range there is not a single one…
Which is strange, considering up until quite recently they were the worlds largest automobile corporation!
This will get them through until about March. Then what?
Really Tomas The only Chrysler I like is the new Challenger… The only Chev I like is the HH-R Nomad…. both of which I would love to see imported to Australia
Dodge /Chrysler could do with a “Hero” car like the Challenger to improve their image given the [ugly] pieces of crap they have sold here in the last few years: 300C Nitro Calibre Sebring etc.. PT Cruiser [Delivery] didn;t look that bad for a Retro car but needed a more powerful engine. ATM their only saving grace is the Hemi Engine
Holden could turn the HH-R Nomad as the next Generation Sandman… I know we’re going to get the new Cadillacs but can they give us the Northstar V8s and leave the rest of the car at home
Let them drown! Fools! To late for sorry, let the market decide and take care of the weak. People are victims of marketing. They will buy what they are told via marketing hype. They sold them a dead end and forgot that it was a dead end themselves…time to go!
Does ford have to have a “Car Tsar” appointed??
Ford have said they only want a safety net amount incase things deteriorate further in 2009.
They dont need the money to survive, but i guess their attitude is “well if he’s getting it, then i want it available too”
Do they need the “oversee’r” now, or only if they do draw on it say mid next year??
Russian & Chinese government started to swallow up the resource and car industries in the last 10 years, now they have total control and pummel the mediocre jobs to the poor while the top 5% are mega rich…. Thought it was a communist thing to do.
Now America doing the same…
With GM and Ford under gov control , when time of war, they can switch over to military production at a cheaper rate…Also control minimum wages and benefits…
Fascism returning…
But with inferior products, not German and Italian quality ;(
This will be the first of a string of handouts by the US government. (That is, unless a policy change occurs and they cease the handouts altogether). The global recession is not going to be over for a while and it’s going to be a long time before the markets recover. It will be even longer before consumers enter into significant transactions such as car purchases.
Even the most optimistic predictions by ford and GM don’t predict decent sales until mid 2010, and this 15 billion loan won’t see them through to anywhere near that time!
This gives little assurance these companies will change anything to prevent future cries for help again.
This is not good sign isn’t it?
So they can survive for a while?
And that mean… GM Holden will survive too?
What’s that all about…. huge disappointment !!!
Why people accept wasting their Tax money for nothing…
Well, President Obama will do something right soon or later right?
It’s just buying them some extra time, at the current money burn rate, by mid next year they will have burned it all.
Will GovCo give them more?
Cheers,
F-0
As easy as it is to say “let the strong survive” the reality is the government is trying to save jobs. Bottom Line. If any one of these companies closed their doors completely image the pressure on the welfare systems with all the jobless people in what’s already an incredibley stressfull time.
People aren’t stupid, they know the wrong decisions were made by the CEO’s at the top. Building cars people don’t want. You might suggest, let the market place decide whether the American car manufacturers survive. I believe it’s time to clean house. These CEO’s who earn megga bucks need to be given the flick. Let’s get real, when these companies make money theseCEO’s get millions but when their decisions are wrong they seem to blame everyone else because as number one CEO’s they don’t make mistakes. I hope that when Governments hand out money to these companies they set a previso that the CEO’s are sacked first and that restructuring within the companies are set in place.
I fail to see the point in subsidising companies, which pursue a failed business model and build the wrong products for the wrong time.
In a world becoming more environmentally conscious and with the passing of “peak oil”, why were these dinosaur manufacturers pumping out V8s and SUVs?
The Government’s bailout is interfering with market forces and propping up dinosaur companies who only now realise that the meteor is almost here.
You don’t see companies like Toyota asking for a tax payer funded handout.
Sure, the old argument about lost jobs arises. However, think about this – if more efficient and smarter manufacturers still manage to turn a profit and increase their market share at the expense of GM, Ford, Chrysler’s demise, then the better manufacturers will need to employ more people to service that greater market share.
Let Rome burn and watch for the reborn phoenix (who hopefully doesn’t fly in a private jet whilst pleading for tax payers money!).
John Doe “the better manufacturers will need to employ more people to service that greater market share.” Yes but when the better manufacturers are located in another country it doesnot help your own economy. Sure both the US govt and big three have been blighted by their own short sightedness, but do you really expect the govt to sit back and watch 10% of the US workforce lose their jobs, their medical insurance, their pensions and their homes?… which would only put more pressure on the rest of the economy.
Dlr1, what would you propose as an alternative? That the Government effectively guarantees a bad business indefinitely by providing a limitless reserve of “oops, you buggered it up again” cash?
At what point do you decide that enough is enough and that the lost workers are better employed with more efficient manufacturers or in industries where the USA is better placed to compete? When does the point come when you say “Hey, this is a money black hole. Let’s instead throw the billions at retraining and retooling these workers in jobs where we do make good products and good profits”.
This raises the more fundamental question of whether it’s appropriate to subsidise a local industry that’s getting smashed by overseas competition. Work out what you do well and focus on that – not many countries can manfacuter as cheaply as China or as efficiently as Japan.
Is your economy best served by throwing good money after bad just so you can keep the punters employed in loss making companies?
Is this approach sustainable?
I love these feedback forums!
Such experts :)
I didn’t see one comment above that really nailed why they need goverment loans…
These articles give some of you a reason to bitch and moan about US auto companies, thats all.
Adam,
Exactly. Everyone seems to want to ignore some critical facts:
These are LOANS not cash handouts.
They are conditional.
They must prove long term viability, through restructure plans.
They must meet new “green” targets.
Executive remuneration is resticted.
The govt gains a stake in the companies.
At this stage it looks like only GM & Chrysler really need it to survive, Ford will make it on their own with current forcasts.
Bret,
Correct and everbody forgets that US vehicles DO match the Jap vehicles for quality, thats reality now.
and…
legacy costs, the big one that has prevented Ford, Crysler and GM making the same level of profits for the past 15 years that Toyota, Honda etc have been making.
The euro, Jap and chinese makers are also asking for Goverment loans to help them pass the sales crisis the entire global auto industry will face through 2009.
Our Goverment also does the same.
The information is there, you just have to look for it.
The media isn’t always ‘honest’…:)
Also..
its’ been speculated that Ford could suffer if GM and Crysler fail, hence thier participation in loan talks.
Ford has enough cash to last atleats until 2010 and only need a goverment loan if the economy sinks further.
Maybe they should let GM and Crysler fail, i think they feel it would cost the US Goverment much more than the 18 billion in a bridge loan, rather than deal with massive job losses if GM and Crysler fail.
Does the US want that on thier already dead economy?
I don’t think so…
Mark my words you will see big Media giants wanting to merge soon.
But Aussies are distracted over the $1000 bonus.
I just looked up the balance sheet of GM. Their total assets are around 110 billion. Their total liabilities are 170 billion.
This is a company with equity technically equal to -$60 billion USD!
Even if GM secure 10b of the 15b on offer, it’s still far from solvent.
John Doe, no i dont think throwing good money after bad is sustainable long term, but as stated above these are not handouts they are loans and equity purchases. Politically it would look worse to let them collapse unassisted rather than let them fail after atleast some assistance has been provided.
Adam has also got it right that Ford probably would fail if the other 2 fell over. If GM and Chrysler collapse, expect a string of suppliers to fold straight after. If that happens and these suppliers also supply parts to Ford then their production lines can quickly grind to a halt, resulting in lower sales and revenue and increasing their own cash burn. Quite a tangled web.
LET GM die …….they have had their time. Ford are in the best position…..if GM or Chrysler go down and suppliers go too they can just import the FG Falcon and at last they will have a fantastic car to buy !!! I know that wont happen but its a good thought !!
DLr1,
That’s right.
I mean i feel as if GM and Crysler should be left to fend for themselves also, but it’s not as simple as that.
If the so called ‘global credit crisis’ didn’t exist, thier respective restructuring plans would be on track to deliver.
I’m still debating if Ford would suffer short term rather than long term however, if GM and Crysler did die.
Ford would obviously gain much more volume do the no GM or Crysler but would suffer short term due to parts supplier shortages.
U can call em loans or equity stakes or whatever but they are nothing more than a bailout.
Adam and Bret,
We are critical because they have been bailed out before in one for or another. Sometimes you need to go backwards in order to be able to move forward. If you let them take a natural course eventually you will get a product that works.
The salesman,
please expand on your assumptions of them being ‘bailed out before in one way or another’??
I’d like some ‘facts’ for a change…
This is a LOAN, not a bailout.
AS i’ve already said…ALL manufacturers are in trouble and asking for GOVERMENT assistance.
What brand of vehicle do you sell again?
Why can’t you just look at the reality instead of trying to justify the maoning and groaning you constanly come out with that is quite honestly, annoying, unproductive and simply tiring…
Adam,
i agree with your thoughts, an I too was sitting on the fence as to whether or not a GM and chrysler collapse weaken them, or make them stronger.
I think Ford took a dose of anti biotics just in time.
they started re-organising their assets, and changing their products around 12 months ago.
I hoinestly think they had just that ounce more foresight than the others to be able to dodge the bullet.
The reason toyota isnt as affected is because the US isnt their mothership. Toyotas sales in the US have slid further than fords. Fords sales have slid the least.
Not even the almighty toyota saw this coming. its seems like just yesterday that they were still heavily focused on trying the push new “trucks” into the US
you would have to had been bloody good to see this coming.
If a US CEO said stop making trucks 12 months ago when they were the top sellers, they would have thrown him in the looney bin
This is a joke,These arn’t American companys anymore,there MULTINATIONAL\GLOBULE,they have no allegence to the american people,IF the US car industry does collapes they will just move offsore.They know this was coming,why do you think Ford built the largest R&D facility in the Southern Hemispere and Holden spent 1 billon on the VE developement in Oz and Holdens already testing deisel engines from Europe(BMW).DONT GIVE AWAY ANY MORE MONEY there is some realiy rich guys sittig somewere in the world laughing at how dumb we are.
No pain, no gain. Jobs have nothing to do with it. These losers sailed everyone down the river. They have to go cause they ooze inefficiency.
Andrew m,
Yes Alan M make the right business decision when he was hired as Ford’s CEO 2 years ago, Ford went through thier pain back then.
GM and Crysler are now being thrust into thier pain due to the credit freeze.
Phill,
If you’re correct, why do they need US operations and sales and njot only rely on the rest of the globe for survival??
Proof please?
technofreak,
blah, blah, blah…
How was that helpful?
Adam,
Ford, GM and Chrysler have had several grants. Bill Clinton drew up an agreement with the big three to have emissions and fuel consumption reduced, which none of them meet,(as far as actually mass producing a car) they just kept on making big cars and trucks because that is what was selling and making the profit (part of the reason they are struggling today). When Toyota and Honda realized the big three might advance in green energy before them, both invested heavily in hybrid technology and moved into the market before the big three did, thus becoming the market leaders.
This is one example of assistance received by way of government grants or incentives. If you like you could Google lots more.
I am against the grant because the big three make the wrong decisions and when they fail threaten to discard jobs or close down. If they can not self sustain or re structure to suit the market then they should not be in business
I sell Kia, but in my time i have been involved with Toyota, Mazda, Nissan, Honda, Ford, Daewoo, Proton, Ssangyong, TATA. My roles have included Sales, Sales Manager and General Manager. I am also a licensed dealer.
These blogs are monitored, a personal attack on some one you don’t agree with is not an opinion on the article and should be struck from the thread. I am interested in the cars and other peoples views on current events or products.
How about those legacy costs…
Trade agreements?
Personal attacks?
I haven’t seen any typed that would be constructive, you say don’t bail them out.
Please put forth your ideas on the results if they don’t LOAN them money.
Adam,
It would be an economic disaster, no doubt. But as i said before sometimes you need to go backwards in order to move forward. Think of it as a forest fire, the destruction looks terrible, the left over burnt bits enrich the soil and new growth begins and it is more resilient and intelligent than that it replaces. A type of evolution if you will. The current manufactures have been on fire to long and a douse of government funding my put out the flames for a short time but i can assure you the fire still burns deep. Eventually the direction will change, i would prefer to see it done with a company that embraces and enforces these changes. If the big three continue on the current path then the fire will rage on.
So you don’t think Ford is on the right restructuring track?
As i said, what about those legacy costs or trade agreements??
It’s not black and white…
If only Australia followed the EU 2L category instead of the US V8 category…and what if the US also followed the leaders – the EU.
They certainly wouldnt be putting their hand out now. But that was the choice made and now they have to live with it, too bad. Arrogance is such a futile pursuit.
BTW, what one the WTCC this year?? or even the BTCC?…..probably one of the options on your list for the next car you buy….
I agree with The Salesman. Its a shame that people have to suffer, but, thats the way the cookie crumbles :)
Techno,
you cant blame the manufacturers for supplying what the public wants
Adam says “everbody forgets that US vehicles DO match the Jap vehicles for quality, thats reality now.”
GM CEO Rick Wagoner says “we acknowledge we have disappointed you. At times we violated your trust by letting our quality fall below industry standards and our designs become lackluster”
Who knows more about US vehicle quality … Adam or Mr GM CEO?
Adam says “If the so called ‘global credit crisis’ didn’t exist, thier respective restructuring plans would be on track to deliver.”
US Congress says “But many US legislators remain unconvinced, arguing the companies’ outmoded business models would have doomed them regardless of the current economic crisis.”
Wagoner agains says “We have proliferated our brands and dealer network to the point where we lost adequate focus on our core U.S. market. We also biased our product mix toward pick-up trucks and SUVs.”
Who knows more about why these US giants are going down … Adam or US Congress and GM CEO?
Adam, do you work for a US car manufacturer? lol!
Technofreak,
Almost every European manufacturer has gone to their respective Govts asking for handouts, this is not confined to three (two?) US based manufacturers.
And people do realise that this has more to do with people not being able to get finance to buy a car, rather than not wanting to buy the cars?
This is US$15 bill, total. At least 3 US banking recieved US$25 bill EACH in govt assisstance.
From what read on Autoblog Chrysler still may go under with a bailout! Not good! Oh and Volvo and Saab,looks like the Swedish government is going to bail them out too!
no surprises that ford owns volvo and gm owns saab. Everthing they touch needs a bailout!!