Motor City Asks for $10 Billion Bailout as GM’s Future is Debated

by StockJockey

Thursday, November 13, 2008 - 12:42 am

The battle for hearts and minds over the fate of General Motors continues, and the Michigan governor is trying to earn her keep:

“There is a fundamental misunderstanding out there for the parts of the country that are not autocentric,” Granholm said. “It is critical that the nation understand that this is not just a Michigan problem.”

Granholm pointed out that even Seattle-based Microsoft Corp., which makes software for Ford Motor Co.’s entertainment and communication product, called Sync, would be harmed by an automotive industry meltdown. She also pointed out that there assembly plants across the nation and thousands of suppliers that rely on the domestic automotive industry. Detroit Free Press

Granholm is predictably playing the "national defense" card, and is also pitching Detroit as a green solution to our energy problems:

“The president-elect has a goal of putting 1 million hybrid electric vehicles on the road by 2015,” Granholm said. “Are we going to cede that territory to foreign competitors?

“This is a national security issue,” she said. “It is a critical national need to have energy solutions, battery solutions and energy storage solutions here, and to have the American automotive industry lead the nation in lessening the dependence on foreign oil and making us energy independent.”

The Motor City and most of the state have imploded under her administration, although I am not sure Superman could have saved this puppy. But she knows whose butt to kiss, and Nancy Pelosi seems to be there for her.

Momentum is building in Washington for a rescue package for the auto industry to head off a possible bankruptcy filing by General Motors, which is rapidly running low on cash.

House Speaker Nancy Pelosi committed Tuesday to pushing aid for ailing U.S. automakers next week, saying a lame-duck session of Congress would consider broadening the $700-billion financial industry bailout to include Detroit’s automakers—with several strings attached. President-elect Barack Obama also is pushing for quick aid.

Treasury Secretary Paulson is trying to play keep away with his precious TARP, but the auto lobby keeps pressing, offering up arguments that ring a bit hollow:

The auto industry, she said, was making progress until the subprime mortgage crisis led to a meltdown of Wall Street firms and the banking industry, causing automotive sales to drop as consumer confidence withered and the ability to get credit to buy cars evaporated.

“The reason why the autos are in this challenge is because of the meltdown in the financial market. They were on a restructuring path—yes they were challenged—but this has utterly kicked them in the gut, it is strangling them,” Granholm said. “So this is a loan to allow them to do the borrowing they need to make the investments that are necessary. This is a different situation than those who acted with greed to get people to take out mortgages that they couldn’t afford and then sold them up the line.”

By the time this gets settled our retirement accounts are likely to be down to zero; the stock market continues to take no prisoners; every day seems like a mini-crash..

Gird yourself, it seems as though GM is not the only disaster in the state. On Wednesday Detroit’s City Council passed a resolution calling for a $10 billion bailout:

Council President Pro Tem JoAnn Watson sponsored the resolution to use the money for public service employment, to fund mass transit plans and to place a moratorium on home foreclosures for two years.

The resolution specifically requests the council meet with Mayor Ken Cockrel Jr., Gov. Jennifer Granholm, the state’s congressional delegation, U.S. House Speaker Nancy Pelosi and officials from President George W. Bush’s office and President-Elect Barack Obama’s transition team.

Hey George Perles, are you sure you want to run for governor?

It might be time to throw a hail mary, but I don’t know if an ex-football coach is the man for this particular job. Maybe he can be the Automobile “Oversight” Czar; President -elect Obama is accepting resumes:

Obama’s economic advisers are now convinced that if General Motors Corp. doesn’t get a financial lifeline soon, it will have to file for bankruptcy by the end of January. And if the companies don’t get almost $50 billion, Obama will be dealing with the issue again by next summer.

Any czar or board would be patterned after the bailout of Chrysler in 1979 and New York City in 1975. Advisers such as former Federal Reserve Chairman Paul Volcker and former Treasury Secretary Lawrence Summers are said to be telling Obama that the cash is urgently needed now.

Maybe we could deed the state to Canada? Just an idea.
_______________________________________________________________

City Council: Detroit needs $10-billion bailout
Detroit Free Press

G.M.’s Troubles Stir Question of Bankruptcy vs. a Bailout
New York Times

Obama Pushes for $50 Billion for Automakers, Oversight Czar
Bloomberg

Granholm pleads for fast action on assistance for automakers
Detroit Free Press
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No Position

Comments:

I have lived in this state all my life and it is an absolute mess what is happening now. The state & local government (City of Detroit) are useless. Granholm hasn’t really done anything to promote the state to other industries. The City of Detroit is a mess & very corrupt and because of this and other factors, the majority of the influential individuals have moved out of the city.

The thing that has not yet been noted in the media is that there are many common suppliers between GM, Ford & Chrysler, none of which are making any real money or have any real reserves. They have been squeezed by the big 3 for price cuts for many years. I would suspect that if one of the big 3 ceased to exist for any reason these suppliers would get wiped out too. Even if there is a ‘bailout’, whatever that ends up looking like, the Auto industry does not need as many models & brands as it has with all of the associated overhead needed.

I am in independent trader so fortunately I am not tied to the auto industry for a salary. I just hope that the area will survive, but at this point I think it will forever look considerably different in a year from now.

Regards,
Eric

Posted by on 11/13/2008 at 08:32 AM

"“The president-elect has a goal of putting 1 million hybrid electric vehicles on the road by 2015,” Granholm said. “Are we going to cede that territory to foreign competitors?”

Ms. Granholm: the “big” three have ceded that territory since the 1960’s.

All in favor of selling Michigan to Canada please raise your hands.

Posted by on 11/13/2008 at 09:14 AM

If America bails out GM and/or Ford we should demand a change in the leadership and management teams. Until someone Disrupts these companies and changes their management approach these companies will not be viable competitors. Read more at http://www.thephoenixprinciple.com

Posted by adam hartung on 11/13/2008 at 09:44 AM

The only strategy that will save Detroit jobs and the domestic car industry is to send GM, Ford and Chrysler through Pre-Packaged Chapter 11 Bankruptcy filings in which EVERYONE—all employees and retirees—accepts a reduction in pay, pension and benefits.

If Honda and Toyota can operate profitably in the US, then, with the right changes, GM, Ford and Chrysler can do it too.

Posted by on 11/13/2008 at 02:13 PM

I would agree with the comment that GM’s leadership needs to be canned, but I do like what some of the new Ford management are doing. Alan Mullally is of the new Ford group & has done some good things, I think he was brought in late though. How can GM’s CEO still be employed there with as bad as the company has done for years now??? I cant figure it out.

The old boys management style needs to go regardless though.

Posted by on 11/13/2008 at 03:06 PM