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03 December 2008

Should the Government Bailout the Automakers?

The Big 3 Automakers again made their trek to Washington D.C., this time in automobiles, to make their pitch a second time to Congress. They are there to justify their need to acquire bridge loans from the federal government to regain their competitiveness in the world auto markets.

The first time they were in Washington they asked for $25 billion, this time they are going after $34 billion. GM says they will need $18 billion, but will only use the last $6 billion in case of emergency or if market conditions deteriorate further. I guess they don't consider this an emergency. Ford doesn't think they will need they $9 billion they are asking for, but want it there for a "backstop". Chrysler is asking for $7 billion.

The loans are said to help not only the automakers, but the entire economy. Without it, many analysts say the economy will suffer a major setback. This is the sales tact that the automakers are using to convince Congress they should give them billions of dollars. After all, they couldn't make their companies competitive before, losing billions in recent years, but this time will be different.

Will the bailout work or will it just put the economy in worse shape by forcing taxpayers to pick up a tab that may not get paid back? With all the money printing going on, at some point the fed will have to deal with inflation.

Congress may be fooled by the reports the Big 3 submitted, but the general public don't buy it. If fact, 61% of those polled believe that the automakers should not get the funding. Another 53% say that they don't think the funding will help the economy.

Only 15% say they will be directly affected if the automakers were to go bankrupt. As expected most of the opposition to the bailout comes from people in West, Northeast and South. But still 53% of people in the Midwest oppose the bailout.

Democrats are more supportive of the bailout, but still 53% oppose it, 70% of Republicans and 61% of Independents oppose the bailout. Seventy percent of Americans feel it is unfair to the taxpayer to bailout the automakers.

The poll was conducted by CNN/Opinion Research Corporation by phone with 1,096 adult Americans. The survey's sampling error is plus or minus 3 percentage points.

4 comments:

  1. When I was a young boy growing up on the southern shores of Lake Erie, where we considered ourselves brothers and sisters to the Motor City, my dad (a Cleveland policeman) routinely offered me some simple financial advice: "You shouldn't be spending money that you don't have in your pocket."

    So, here's my concern about the bailout: I do not want to see any of the big 3 automakers go out of business or even cut back and lay off thousands of workers. But if they are turning to us for loans - billions of dollars in loans - they must be held accountable. However, I really do not want the federal government telling business how to "do business." It's a conundrum.

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  2. I think that they should be bailed out because of the large infrastructure that is not represented by generalizing corporations by title. But, there is light to the bailouts being givin out. You can already see deals, more grant money, and furthermore ample opportunity to succeed regardless of economic status. I've been doing some research, and there's more grants and lower APR's out there now than before. Bailout is for you too!

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  3. My concern is that $34 billion is not going to be enough. Moody's Mark Zandi testified before Congress saying that the probability of the automakers coming back for more money is high. He feels bankruptcy will eventually be needed.

    I understand the argument against bankruptcy, that no one will buy a car from a company going bankrupt and no lender will finance a car for someone wanting to buy from a bankrupt company. Although the government could guarantee the warranty on the loan and the car to help get the sales moving again.

    It's a tough call, bankruptcy could lead to more efficient companies, but at what cost to the rest of the economy? Is bankruptcy inevitable, flushing this bailout money down the toilet? Or should bankruptcy be avoided at all costs?

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  4. I'd like to Post a Comment The recession really isn't that bad if you know where to look. The bailout money is spilling over to us believe it or not. I've done research and found that there is more money than what you think...

    Bailout Spillover

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