What's Another $25 billion for Detroit Automakers?

Posted on September 14, 2008 at 10:32 PM PST by

Lost in this weekend’s news about the $700 billion bailout package for the banking industry was a $25 billion loan package for United States auto manufacturers. This package comes at a time when apparently Congress and the President believe that the American people will see $25 billion as a pittance compared to the $700 billion they’re already planning to spend on mortgages. While there certainly is precedence for this move – the government loaned $675 million to Chrysler in 1980, this loan package is several magnitudes of order larger.

I’d like to point out the immense irony here. General Motors, Ford, and Chrysler are currently struggling significantly against Japanese and other foreign manufacturers who have spent the last many years improving fuel efficiency and developing hybrid and other alternative technologies. If Detroit had spent as much time, money, and effort in research and development as they did lobbying Congress to keep fuel mileage standards low, and made competitive non-gas guzzling vehicles, I would venture a guess these loans wouldn’t be necessary.

I believe that most people understand a mortgage bailout was necessary. I’m not so sure that I understand how the failure of Detroit could cripple the United States economy. There are plenty of foreign auto manufacturers with operations in the United States – Toyota, Honda, and Nissan – who could easily pick up the slack. Their vehicles are outselling American automobiles. They are building plants in places like East Liberty, OH and Lincoln, AL, providing jobs for people displaced by the failure of Detroit.

Jim Press, Vice Chairman of Chrysler said that this loan package will reduce America’s dependence on foreign oil. Given that other manufacturers are already well at work on these technologies without the need for this money, I find his statement hard to swallow. Chrysler Chairman Bob Nardelli was quoted as saying this money “…is not a bailout.” This is simply not true. Detroit was relegated to borrowing from the government because the private capital markets are shut off to it due to bad credit ratings and history of financial losses.

I, for one, am outraged at this loan package. It is anti-competitive to startup companies like Tesla Motors who are investing their own money in alternative technologies like battery power. $25 billion is a lot of money. Detroit should not be able to argue for 30 years against improved fuel mileage and better technology, and then come back to the same government they persuaded into facilitating their failure, for a bailout.

You may like these other MarketRiders articles:




X