Join Date: 11-06-05
Location: Dearborn Heights, MI
Mentioned: 7 Post(s)
Obama makes a good bailout move (if there is such a thing)
I don't support bailouts of non equity, non manufacturing or job creating industries, but I would 100% back this if it goes through
A long time ago I gave my rant about why the auto industry is failing and why the bank bailout won't help. The industry is failing at it's roots, the suppliers, not the OEMs. The suppliers are so cash strapped that they had to change the rules of business with the OEMs... here is my rant from a few months ago
Originally Posted by Bones
ok, here is my rant
I am absolutely amazed (in a bad way) at how our government has functioned in the past numerous months dealing with fixing industries they helped destroy. Looking back it's almost comical, comical in the sense it makes my ears bleed from trying to rip them off. I will compare the automaker to Citibank, since I have been mildly following that bailout too. Let me try to recreate a timeline for you...
700B dollars is released my the treasury to help ail the banks, which create no product, and no "trickle down" jobs. Someone (not the automakers) has a great idea to give LESS THAN 2% of that money to the automakers, and suddenly, bailouts are a terrible idea. Banks are given the initial bailouts, including an astounding 300B to Citibank. The automakers are asked to address congress to presumably accept the loan, just like the banks did. That week, the automakers show up to congress and are absolutely embarrassed due to be ambushed by politicians who don't understand common business and security practices (flying a freeking company jet). They are asked to return to make a business case on what they would do with their relatively small 24B. AT THE SAME TIME Citibank announces they are going to sell out sub holders to create more equity (keep in mind they already agreed to take 300B to help the bleeding. Stocks of Citibank tanks. That SUNDAY (yes, I said SUNDAY) the treasury meets to address Citibank again and agree to release another 20B, which hardly made headlines. The automakers then return to the capital, mainly as a publicity stunt, driving hybrids there, doing phone interviews on the way down, etc. They are asked retarded questions like "How many of the miles did you drive?" Yes, that was asked to Alan Mullaly, the CEO of Ford, as if that somehow pertains to how dedicated he is to making his company survive through the credit crunch that the automakers had absolutely nothing to do with. They meet for days and are told to go home, empty handed, while the "experts" discuss it. Days later, a revised 14B loan in brought forward, and immediately shot down again. Now, the latest "bailout" is now a "softened bankruptcy" that would basically shut down all plants immediately.
Suppliers are already asking for parts to be paid in full prior to being built, where in the past it was only 20% with the remaining 80% on delivery. Supplier expansions, which are also usually a 20-80 business, are now 100% up front. Why are the suppliers changing the rules? Not because they are worried that the Big 3 can't pay once the product is delivered, but because the suppliers can't get credit to expand their businesses on their own. The same banks that got the bailout refuse to extend credit to the suppliers that are trying to feed the OEMs, who can't sell cars, because no one has any credit… and if they do, they are terrified to spend money in an economy like this.
If the government thinks they can run a car company, I applaud them. I think they are insane, but I applaud their ignorance and audacity. If the banks they bailed out had helped main street and not wall street, the OEMs wouldn't need a bridge loan to pass down to their own suppliers, the suppliers would have received credit from the banks like they should. Instead, our governemnt has decided to back an industry that doesn't create jobs, doesn't create equity, and doesn't help the average person.
And so now it seems, that people are starting to understand this. Here is an article today on a bailout plan for suppliers, not OEMs.
WASHINGTON – The Obama administration announced today a $5 billion financing plan to aid struggling auto suppliers, the first move by the president toward a broader rescue of the U.S. auto industry. Advertisement
The Supplier Support Program will use a trickle-down method of funneling the money through Detroit automakers to their direct suppliers. General Motors Corp. and Chrysler LLC will take part, but Ford Motor Co. has yet to decide whether to participate.
The Treasury Department said the program was not meant to save every firm, saying that “the failure of certain suppliers is a natural, albeit painful, part of the business cycle.”
“But as the restructuring process moves forward, the Administration is committed to helping stabilize the industry, protect American jobs, and give consumers the confidence and the means to purchase cars,” the Treasury said in a statement.
Michigan lawmakers hailed the plan. Rep. Sander Levin, D-Royal Oak, said the program was a “valuable first step.” Sen. Debbie Stabenow said the plan was “a very significant sign that they understand the importance of suppliers, and they want to help.”
With industry analyst firm Grant Thornton predicting last week that up to 500 U.S. auto suppliers are on the brink of failure, rescuing the auto supply chain had risen to the top priority for the Obama administration’s auto task force. The weakest U.S. sales in four decades triggered massive cuts in production over the past few months, leaving suppliers struggling for cash.
In normal times, a supplier gets paid between 45 and 60 days after shipping a part to an automaker, and can use the promise of that payment as collateral for loans. But in recent months, the collapse of credit markets and the troubles at GM and Chrysler have made lenders unwilling to trust those promises.
The program will offer suppliers two ways to benefit. It will guarantee the payments from automakers to suppliers, easing the concerns of lenders. Auto suppliers may also sell the payment to Treasury at a slight discount for an immediate cash infusion.
The offer only applies to parts shipping after today, and can be used by "U.S.-based" suppliers and automakers. It also gives the automakers the power to decide which suppliers and which parts are eligible.
The Treasury said GM and Chrysler had agreed to take part, and had contributed an undisclosed amount of money toward the $5 billion fund. Ford has said it did not want to take government assistance, and were it to sign up for the supplier program, it would apparently face the same restrictions on executive compensation and other rules that GM and Chrysler do.
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