My understanding is that they’re seeking loans to cover the payments they owe into the new healthcare “trust”. They agreed with UAW to transfer the retirement medical liabilities to this “trust” to get the liability off the books before costs increase and/or the companies fail.
This will free up the cash to be used to run the company. Living in the 2 auto capitals of north america, I certainly have a vested interest. But if the auto companies fail to meet their pension obligations will be left to the US government to cover and the benificiaries would lose a majority of their retirement income. What is the better risk, the loan or the possibile results of bankrupcies.
So, once GM goes bankrupt, then all the GM cars that are out there suddenly lose value, because nobody wants a car that might have no support/parts available. The GMAC auto portfolio contains about $500 billion of loans. How many will default? What will happen to all the “asset backed securities” (yes, just like mortgages were packaged) and the banks that hold, them? The fear is the results of these failures will be similar to the mortgage equivalents that brought down the mortgage industry (rather than the Mortgage CDO bets that sank the banks summer/fall).
Same arguments as before, what’s the best bet, trying to save it or letting it die?
I guess the last argument is that foreign competitors have received money from their governments, such as mazda(bailout) in Japan, Renault when failing before Goshn took over and VW (tax breaks) in eastern europe, brasil and mexico, Tata in india.
1 idea i was thinking of is to give the car companies a tax credit/payment, when the sell vehicles that use natural gas, are rechargable or maybe have high mileage ratings (twice the national average? or whatever seems like good policy). This way they have to both win a buyer in the market place, but also sell technology that reduces either dependence on foreign oil and/or reduces CO2 output to get the cash.
Finally, the US government made money when they bailed out Chrysler in 79/80. That was the argument for taking risk with financial industry. Well the Chrysler example matches the current situation quite well.