Automobile Industry Joins in the Corporate Welfare Fest

Although an hour ago it was looking like the Henry Paulson $700 billion-plus bank bailout was close to being a done deal, now it’s far from clear. AP reports the negotiations have broken down. Lawmakers and Bush administration officials plan to meet throughout the night to try and revive the bailout package.

Meanwhile, U.S. News & World Report advises that car makers General Motors, Ford, and Chrysler, may soon get $25 billion in loans from the federal government to help them “green” the cars they make. They plan to ask for another $25 billion next year.

“It seemed like a lot when we first started pushing this,” said Senator Debbie Stabenow (D-Michigan), a sponsor of the legislation. “Suddenly, it seems so small.”

According to the report

Many analysts expect all three domestic car companies to face a life-threatening crisis if the U.S. car market, down about 20 percent so far this year, stays in the doldrums. GM and Ford could start to run out of cash by the second half of 2009, a precursor to declaring bankruptcy. Chrysler’s finances are now private, but its sales are down even more than at Ford and GM, and it may be starting to bleed its corporate parent, Cerberus.

The idea behind the loans is to buy time while the Detroit 3 revamp their lineups, develop new hybrids and other fuel-sippers, and convert old SUV plants into factories turning out hot cars able to compete with those from Toyota and Honda. “I think they’re on the verge of really turning the page,” says Stabenow. But Detroit has fallen mightily. Consumers reeling from $4 gas have fled the big trucks and SUVs that the manufacturers milked for two decades, and Detroit’s smaller cars tend to rate poorly compared with competitors. The domestics’ U.S. market share is now about 48 percent, a staggering fall of nearly 20 points since the start of the decade. Fitch Ratings expects GM and Ford to produce about 1.3 million fewer cars this year than in 2007. Even cheap loans will do little to help erase years of red ink. “Even if they had positive cash flow,” says Mark Oline of Fitch, “it’s going to take some time to make a dent in their debt load.”

The legislation is moving quickly through Congress and could be law in a matter of days.