US edges closer to rescue package for car makers

[2008-12-23 17:07:39]

President Bush and the democrats are committed to saving traditional American car makers, but they have to sneak new legislation past the Senate

American industry journal Automotive News reports that the White House and Democrats in the US have "agreed in principle" on a US$15 billion package to save American car makers, GM and Chrysler.

The two car makers are faced with oblivion as a consequence of mounting economic and financial pressures.

According to Automotive News, key points of a provisional rescue plan have been approved by both the President and the Democrats, with the Democrats expediting the vote on the bill in the House of Representatives, ahead of submitting it to the Senate "for consideration". The House of Reps passed the bill yesterday and it's now subject to the closer scrutiny of the Senate, which is believed to be hostile towards the plan -- in the face of guarded approval from the incumbent President. It's not a done deal that the plan will go ahead, therefore, unless the numbers in the Senate side with the plan.

One of the key points -- if not the key point -- of the plan is for the appointment of a 'car czar' to oversee the two companies and their future plans. The incumbent in this position would be a bureaucrat, reporting to government. In effect, it doesn't so much nationalise GM and Chrysler -- although the US government would be the largest shareholder in the two companies -- but it provides a degree of oversight unprecedented in the American industry, something not dissimilar from the Japanese industry.

The so-called 'Car Czar' would have the power to initiate restructuring of the two companies and quash future product development plans. There would be no spending over US$100 million without the approval of the 'Car Czar' (who might also be a 'Car Czarina' for that matter). As a last resort, the bureaucrat could recommend bankruptcy.

For the present, public opinion is split on the plan. Many are already uneasy about the government splurging US$700 billion to save the banks and other financial institutions two months ago -- and the auto industry plan seems like more of the same.

Others argue that the precedent has been set, saving millionaires in the finance sector, so it's a lesser evil to save the jobs of blue-collar workers in the automotive industry. And a loss of major players in the automotive industry would inevitably tip the country deeper into recession.

There's a lot happening at the moment. Ford and GM have listed Volvo and Saab for sale -- and the Swedish government has committed US$3.5 billion in aid for the two home-grown brands.

Financial market monitor, Standard & Poor's, has announced that if GMAC cannot qualify for government assistance, it runs the risk of bankruptcy in the current climate -- leaving many GM dealers without floorplan finance, an echo of the situation in Australia (more here ). GMAC has applied formally to be a 'bank holding company' which would pave the way for government assistance (part of the US$700 billion package mentioned above). Without some of that assistance, the established financier would go to the wall.

The current situation, according to Automotive News, is slowing GM's implementation of a long-standing plan to amalgamate the Buick, Pontiac and GMC dealer networks in one 'sales channel'. Much as GM Premium Brands sells Saab, Hummer (and Cadillac shortly) in Australia, the BPG stores would sell all three brands through 'three-brand stores', which account for 80 per cent of sales for those marques. Without the money to win over current 'single-brand' dealers, GM is in a holding pattern.

How does it affect the GM's holdings in Australia? No word as yet. The Carsales Network spoke to Holden's Corporate Communications Manager, Jonathon Rose concerning any collateral damage that might eventuate from the global situation, but the Holden spokesman was not in a position to comment.

"As far as the US situation is concerned, a lot of those questions at the moment are best asked by the US, as far as its financial arrangements and funding [are concerned]..." he said.

Holden has already pulled back its production (more here ) in anticipation of a slower market next year and to clear the backlog of vehicles on the grass.

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Published : Friday, 12 December 2008
Source: carsales.com.au
Keywords:car; vehicles
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