A $15 Billion Jumpstart for the Big Three?

After digesting an abysmal November unemployment report,
House Leader Nancy Pelosi (D-Calif.) is a "car czar" away from working
out the kinks for a $15 billion auto Hail Mary, less than half the
amount requested by the Detroit Three. This bridge loan will supposedly
keep the auto industry running on fumes until March, when Obama's pit
crew can step in.

The numbers the automakers want are big to be sure, but not
compared to those of the banking industry. Yet, Congress is
transferring the caution they should have employed in determining the
Troubled Assets Relief Program to the auto industry.

The American auto industry's lifeline is less than a fraction of
what it cost to bailout AIG alone. And no one from AIG had to face the
Senate Banking Committee to get its $152 billion rescue package.
Indeed, Senate Banking Committee Chairman Christopher Dodd (D-Conn.)
thought that the automakers made a better case for federal help than
the financial industry did. Of course, Wall Street had the Treasury
Secretary and Federal Reserve Chairman batting for them, whereas the
automakers were on their own. Unfortunately for auto execs, Detroit's
poor business model is far more transparent than Wall Street's. With
Wall Street, the lack of clarity helped bag the money.

So what's the problem? Well, unless the economy turns around within
the next three months or Americans spend their last bits of credit on
D-3 cars, merely getting government loans and cutting expenses won't be
enough to stave off the next request for dough-way before March.

That's why Sen. Richard Shelby's (R-Ala.) question
to the execs, "How are you going to pay it back?" was spot-on. So was
the one about why the execs were only asking for $34 billion, rather
than the $75 to $125 billion that the automakers said they'd ultimately
need to avoid bankruptcy.

Bankruptcy is a scary thought. But there's a scarier one: the dreaded, risky, murky, unregulated financial instrument known as credit default swaps.
When GM's CEO, Rick Wagoner, said, "there's a significant amount of
credit default swaps that would be triggered in a bankruptcy, in
addition to credit lines with major institutions," eyebrows raised.

Still, the only thing that will fix a cash flow problem is cash flow. Ford is considering
the sale of Volvo, but the problem is a lack of buyers. Every car
company is hurting. Every private equity company, even those that own
car companies, is watching from the sidelines.

So, maybe the conversation in Congress should have centered on
trying to figure out a way to make money out of existing inventory. If
languishing vehicles are part of the problem, let's make them part of
the solution, too.

Subsidizing low-cost consumer driven purchases would move current
inventory and pre-establish a set of buyers to switch into the new
lines of more fuel-efficient cars when they come about. This would
ensure present and future cash flow. Otherwise, layoffs, UAW
concessions, not funding off-book health care plans, closing plants,
and the fire sale of brands, just won't plug the dam of losses. That
said, trillions of dollars hasn't stopped the fallout from Wall Street, either.

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