The US auto manufacturers are playing the “me-too” card with Washington. They are expecting to be bailed out just as banks and brokerages have over the past year. Fair logic. A bad idea though.

                        

It is no secret that American auto manufacturers have been losing market share for decades. It may also not come as news that this is a very tough year for auto manufacturers as a whole. With that back-drop, it is interesting to note the “big three” got together to approach Washington for some help. They are asking for $25B – $50N in loans – and for the loans to be very cheap – and federally guaranteed.

 

We recognize that auto manufacturers contribute significantly to the GDP of this country (though less every year) and that they have a heritage that is linked to the identity of the country. That said, we should not support the federal government stepping-in to act as discount banker to the industry.

 

There is a reason “the big three” are paying interest rates triple the rate they are asking for – from the federal government. It is because their business is perceived to be risky / borderline speculative – and is!

 

Why don’t we just cut to the chase? The US auto manufacturers are going to have to file for bankruptcy protection, wipe-out existing shareholders, re-structure so they have no debt (meet the new share-holders), and re-emerge with worker contracts that allow them to compete with their foreign competition. Oh- and also re-negotiate their obligations to pensioners. Sounds like a PBGC (Pension Benefit Guarantee Corporation) bail-out is closer than we think.

 
If we allow the federal government to start giving loans to large businesses, we risk treading on a slippery slope that allows many other large businesses that are “too big to fail” to seek help from the federal government whereby we end up footing the bill. We’ve got enough to pay for already (national debt is over $50T all-inclusive).