Like the ugly step-sister that just can’t wrangle an invitation to the ball, the Big Three of Detroit still can’t get a commitment for a bailout from Congress.
Apparently banks are much sexier than carmakers because all they have to do to get money handed to them by the Fed without any restrictions is look forlorn. The carmakers on the other hand, have to come back to Washington a third time with a business plan in hand and grovel.
Granted, I like the idea of a business plan, but why aren’t the banks being asked to do that? Last month the Treasury gave Citigroup $24 billion and Sunday night tossed another $20 billion in their direction. But, wait, there’s more! Besides giving them money, the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp will assume 90% of the losses, more than $300 billion, of the firm’s toxic mortgages and related securities. (A.P.)
In return for this massive handout of cash, does Citigroup have to offer a business plan or even be accountable for how they spend the money? No.
In fact, they have continued to hold executive retreats at exclusive resorts, are still extending bonuses, are going ahead with plans to remodel executive offices and still intend to spend $400 million, over 20 years to have the new New York Mets ball park be named “Citifield.” As Rachel Maddow suggested, perhaps it should be called “Taxpayers Field.”
On Wednesday the Fed announced a new $800-billion initiative to revive the nation’s credit markets. $600 billion will be used to buy mortgage-backed securities held by government-sponsored lenders Fannie Mae and Freddie Mac as well as debt held by them and the Federal Loan Banks.
The remaining $200 billion will be used for loan guarantees to holders of AAA-rated assest-backed securities containing consumer loans such as credit card, auto and student loans. The Treasury Department will cover up to $20 billion in losses on these loans. (L.A. Times)
Anything in there for the Big Three automakers? Nope. Any trickle down effect regarding auto loans from this package will be too little to late for Detroit.
Talk about your wicked step-mother!
Over the past year, the automakers have cut back on production and laid off thousands of workers, but it’s still not enough to remain solvent. In fact, Sean McAlinden, chief economist at the Center for Automotive Research told the L.A. Times, “I do believe the Detroit three will be insolvent within 12 months” unless they receive government cash.
Apparently the Big Three executives got the message about flying in to Washington in private jets when coming to beg for money. They are now planning to make their trip next week by carpool. No kidding. (A.P.)
Good idea. If you come calling to grovel, you should at least appear somewhat destitute and contrite.
As if Detroit doesn’t have enough worries with no bailout as well as one of the highest foreclosure rates in the country, several foreign automakers are pulling out of the January 2009 Detroit auto show. Nissan, Suzuki, Ferrari, Rolls Royce, Land Rover and Mitsubishi have all sent their regrets.
Perhaps they should turn it into a Blue Light Special Show. Instead of just showing off the new models, put big markdowns on those behemoth gas-guzzlers they have been building for many years. There are some real turkeys there! Get rid of inventory and bump up the coffers.
Unfortunately Detroit doesn’t have a lot to be thankful for this Thanksgiving and unless a fairy god-mother happens along and invites them to the Bail-Out Ball there is no Cinderella story for the Big Three.