Friday, December 19, 2008

Auto industry bailout seems to make sense

It's way too early to tell if the White House plan to offer as much as $17.4 billion in loans to the three largest U.S. automobile manufacturers will enable them to avoid collapse. General Motors and Chrysler are expected to begin borrowing money almost immediately to stay in business, according to the Reuters international news service, while Ford claims to have enough cash to stay afloat for another year. The world economic crisis has taken an enormous toll on manufacturing across the globe, and the large U.S. automakers are particularly vulnerable after years of slumping sales. Of course, the slump started long before the economic crisis, as U.S. automakers ignored logic and, worse, tried to game the market to continue producing gas-guzzling vehicles that offered more profit than fuel-efficient cars and trucks. The market for gas-hogging SUVs, for example, would never have grown so large had not automakers lobbied for, and won, exemptions from clean-air requirements for the vehicles. But to have General Motors and Chrysler fail at the same time at a cost of hundreds of thousands of jobs, with the economy already entering a recession, probably is too risky for the U.S. economy. Most of the money for the loans will come from the $700 billion financial system rescue package currently being distribued by the U.S. Treasury. "If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation for the automakers," U.S. President George W. Bush said Thursday in announcing the program. U.S. stocks rose on the news, with GM shares jumping 10.9 percent. Bush had to create the auto sector program on his own after members of his own party blocked a Democratic Party-backed deal last week. The deal includes a March 31 deadline for the companies to come up with restructuring plans. Democratic President-elect Barack Obama, who will inherit the program when he takes officer Jan. 20, welcomed the loan move as a necessary step. But he said he wanted to make sure workers did not bear the brunt of the restructuring. "My top priority in this administration is to create 2.5 million new jobs and I want some of those jobs to be in the auto industry," Obama said. The U.S. auto slump has impacted car parts makers and other manufacturers worldwide. Mexican conglomerate Alfa said Friday it was halting production at its nine parts plants in Mexico and Japanese automakers also are expected to report lower earnings.

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