American Automakers Ask Congress for $50 Billion in Low-Interest Loans

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Researched by Industrial Info Resources (Sugar Land, Texas)--The American automotive industry is in dire straits. Sales have continued to fall each month and announcements of layoffs, closures, buyouts and early retirement occur almost monthly. General Motors Corporation (NYSE:GM) (Detroit, Michigan) and Ford Motor Company (NYSE:F) (Dearborn, Michigan) have seen their stock prices drop and hover in the single digits for months while Cerberus Capital Management LP's (New York, New York) acquisition of Chrysler LLC (Auburn Hills, Michigan) can only be qualified as less than successful a year later. In what can only be seen as an act of desperation, the American automakers have appealed to Congress, hoping that they can, with the help of their powerful lobbyists, persuade the government to give them $50 billion in low-interest loans to help assure a brighter future.

Although the request smacks of a buyout, representatives of the industry swear it is not. Couched in the terminology of assisting the automakers in their efforts to modernize their facilities and help develop more fuel-efficient vehicles, the automakers are hoping that Congress will pass them tax dollars, allowing the companies to, at least partially, correct decades of mismanagement and incorrect market trending analysis.

For decades the American automakers have ignored the signs pointing to a "less equals more" philosophy being a more judicious method of managing their industry, a lesson the foreign automakers have accepted whole-heartedly, and continued to expand when contraction would have better served the industry as a whole. While companies such as Toyota Motor Corporation (NYSE:TM) (Toyota City, Aichi) and Nissan Motor Company Limited (NASDAQ:NSANY) (Chuo, Tokyo) have mastered the flexible manufacturing philosophy that has enabled them to produce multiple vehicles on a single platform, the American automakers appeared to have missed the memo and continued to construct new plant after new plant geared to a single or, at best, two models of vehicles.

Now the chickens have come home to roost, as is evident in the rapid decline of the American automakers. Many insiders would say there was no predicting the recent combined crash of the housing market, the credit industry and the overall economy, as well as the automotive sector and the rise of oil and gas prices to astronomical levels. The foreign automakers appear to be weathering the storm much more easily than their American counterparts.

Approximately two years ago, the bigwigs of the Detroit Three were announcing how sales of trucks and large SUVs would be the saving grace for their respective companies, which were already losing market share rapidly to foreign automakers, especially the Asians. Of course, this was before oil prices began skyrocketing and sales of those same vehicles virtually disappeared. Now the American automakers, after putting tens of thousands of workers out on the street with early retirement offers, buyouts and outright layoffs and have announced shift reductions and plant closures in virtually every region of the country, are asking the American people, through Congress, to loan them a massive amount of money so they can do it right this time.

While a complete collapse of the Detroit Three benefits no one, including the foreign automakers, that may well be where the automotive sector ends up. However, before Congress gives these loans, although all indications are right now the loans will not get approval, assurances must be made that the money will be spent responsibly and correctly, in a manner that will indeed redirect the American automakers out of the mess they have immersed themselves in. Eventually the government is going to have to step into this situation and take some kind of corrective measures, or the country will be faced with major automakers failing, much as Chrysler did many decades ago.

The form of this governmental assistance will have to be worked out, but it will certainly involve billions of tax dollars. What it should also involve is governmental oversight over the day-to-day business practices of the Detroit Three to ensure that the money the tax payers will give these industrial giants is not wasted on frivolous programs and efforts that will not solve the problems so firmly entrenched within the management of the automakers. Of course, with this being an election year, the cause of helping the American automakers, and more importantly their thousands of voting employees, will soon become a political pawn in the struggle between the Republicans and Democrats to get their respective candidates into the most powerful office in the world. One can only hope that in the election furor, cool heads will find a way to prevail and make the correct decisions at the governmental level about how it is best to assist the American automakers. While they can continue to insist that this series of loans would not be a bailout, if things are not managed correctly, a bailout is exactly where the automotive sector is heading.

Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.