On Saturday we posted a story regarding a CNN poll that expressed Americans’ souring opinions regarding the survival of both General Motors and Chrysler. A poll from CNBC today seems to agree.
As of 12:20 p.m. EST, out of 3,868 responses, 83% believe that General Motors wasted the $13.4 billion in taxpayer-supported aid they received.
They say that “time will tell.” Well it certainly has. Four months ago a majority of Americans felt that the Big Three were “too big to fail,” and that their bankruptcies would result in a problematic chain of events. Things change:
Three-quarters of all Americans think that the federal government should let General Motors or Chrysler go bankrupt rather than pumping more money into the struggling automakers, according to a new CNN/Opinion Research Corporation poll — and most now say that the economy would not face major problems if those companies went into bankruptcy.
It was the end of November 2006. Ford’s Chief Executive Alan Mulally, who had been at the helm for less than three months, gathered 400 bankers in a New York ballroom looking for money:
In a packed ballroom at a New York hotel, Ford’s chief executive, Alan R. Mulally, said he would mortgage all the company’s assets for billions of dollars in loans to finance an overhaul of the troubled automaker. Although the economy was healthy then, Mr. Mulally said the money would give Ford “a cushion to protect for a recession or other unexpected event.”
Why has the government adopted such a fundamentally different approach in regards to how they have dealt with the housing crisis as opposed to the auto crisis? Since the inception of the latest housing crisis, strategies intended to deal with the problem have been a bottom-up approach: stimulate demand at the product level. Every solution to date has been designed to deal with the issue’s root causes (i.e. foreclosures, falling home prices, high mortgage rates), and thus stimulate consumer demand in order to correct them.
Why hasn’t this approach been taken with GM and Chrysler? The government’s approach with these automakers has been to pump repeated billions into the top, in hopes that it will trickle down to consumers. Since the automakers’ fundamental problem is that Americans aren’t purchasing their vehicles, why hasn’t the government taken the same approach they’ve taken with the housing industry and provide consumer incentives to purchase their vehicles?
The question may sound harsh, but when GM and Chrysler submitted their “midterms” yesterday, their grade wasn’t too good. Granted they’re working on calculating more realistic future projections — but unfortunately that means sending thousands more Americans to the unemployment lines, closing more plants, and oh did I forget to mention the two are requesting another $22 billion between them. The automakers claim they won’t be able to make it to their “final exam” on March 31 without it.
Since early December GM and Chrysler have been urging the U.S. government that if they don’t receive billions more by a certain date, they run the risk of running out of money completely.
A lot of investors were cheered by the Fed’s decision last week to throw more money at GM so the automaker could offer zero-percent financing to (mostly) creditworthy borrowers. And, indeed, it might seem to be a laudable idea, since the premise behind the bailout was, and is, to get the Detroit Three to move product again.
But The Wall Street Journal points out the problem when one participant is favored over others:
Moments ago President Bush announced that his administration would in fact provide struggling U.S. automakers with federal funds to put together sustaining plans of viability. The President said Chapter 11 bankruptcy would not work at this time. The automakers will have until March 31, 2009 to prove they can once again become viable and profitable. (Ford said it wouldn’t need the short-term funding, which lets GM and Chrysler split it.)
Without going into details, President Bush made it clear that strict conditions of adherence will be a part of the deal. With bipartisan support from both houses of Congress, the White House said their plan is quite similar to Congress’ rescue plan which failed in the Senate.
Henry Paulson’s last month as Treasury Secretary is likely to be a quiet one, barring any unforeseen financial emergencies. Mr. Paulson has made a few statements as of late suggesting that the probability of any final big-ticket decisions by him is slim.
In a CNBC interview, Mr. Paulson said he does not plan to seek the second half of the TARP funds. Yet, Paulson did refer to the Treasury’s ongoing attempt to provide the Big Three with a bridge loan, funded by the remaining billions of the TARP’s first installment: Read the rest of this entry »
Two new polls continue to show that most American adults oppose using taxpayer money to bail out the Detroit Three. A Gallup poll finds us split fairly evenly:
According to the same survey, Americans are about evenly divided over the merits of the failed bailout package: 47% say they would rather have seen the legislation pass, while 46% preferred that it fail.
As of yesterday, there were no announcements of any planned action by the Treasury Department to provide financial aid to the Big Three despite the president’s ongoing assurance (hat tip: Calc Risk):
“An abrupt bankruptcy for autos could be devastating for the economy,” Mr. Bush told reporters aboard Air Force One during his trip to Iraq and Afghanistan. “We’re now in the process of working with the stakeholders on a way forward. We’re not quite ready to announce that yet.”
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