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December 8th, 2008

Auto Bailout Making Less & Less Sense



We’ve seen the structure of bailouts change before to better equip preconceived objectives, yet, the American-auto industry’s bailout seems to have shifted in the wrong direction. Lawmakers are said to be focusing on a  bailout draft that would offer the Big Three $15 billion. Last week GM, Ford, and Chrysler asked for a combined $34 billion. Why are lawmakers choosing to apply a band-aid over a problem that requires so much more?:

Even if all the parties are able to work out a deal for short-term aid, GM and Chrysler will still have to come back to Washington after Mr. Obama and the new Congress take office. GM has asked for a total of $18 billion in government loans and Chrysler $7 billion. Both companies together have applied for more than $10 billion in additional loans through the Energy Department program to help them improve fuel efficiency.

The good news is the proposed $15 billion would be pulled from the existing fuel-efficient loan program, instead from TARP funds as some lawmakers have suggested. GM’s Vice Chairman Robert Lutz doesn’t like the word “bailout,” he claims the funds are merely short-term financing:

“We’re guardedly optimistic that short-term loans will be available,” he said.  “I sort of object to the phrase, ‘bailout.’ Frankly, everybody uses it, but it makes it sound like it’s money that’s transferred one way and will never come back, whereas what we’re really talking about is loans.”

Lutz also spent much of his weekend defending his CEO Rick Wagoner, who lawmakers, like Senator Chris Dodd, believe that any form of a bailout should be met with new management. Lawmakers could vote on a draft of the bailout as soon as Tuesday.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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