Senate Throws Out Auto Bailout/Loan Plan

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In a Republican filibuster on December 11th, the auto loan plan was voted against, mainly by Republicans who wanted a new plan with new rules. So, now we go back to the drawing board… President Bush is working to use TARP resources.

If you remember correctly, TARP is the Troubled Assets Relief Program that is also called the $700 billion bailout plan. Numerous Democrats along with many Republicans want the President to tap into the TARP funds and leave the $25 billion that was already promised to the big 3 alone.

This presents an interesting situation for the big 2 of GM and Chrysler currently. The biggest problem they now face is that Congress won’t meet again until after the first of the year. So, they have to make it in other ways. The President is thinking of letting them tap into the $700 billion for relief until the next meeting on how to help the automakers. GM and Chrysler are obviously alright with this.

January 5th is when the new Congress takes office and is able to reconvene.

GM has already said it would step back production by about 250,000 vehicles for Q1 of the new year.

One thing must be made very clear about this whole situation. Each time myself or someone else calls this a bailout plan, it isn’t. It’s an emergency loan situation. We are loaning all of this money to the automakers at high enough interest so that it’s possible that when the automakers pay us back, we make a profit. Just the same as it happened in 1979 when Chrysler petitioned for government loans. They asked for $1.5 billion and brought in Lee Iacocca to be the new CEO to guide them through. In 1983, Chrysler paid back the loans with the added interest to actually show a profit that the government made back on the loans. So, this could turn into the same situation, if handled properly.

-Josh

“Happy Motoring!”

[Source: Autoblog, Autoblog, Bloomberg]