President Bush on Tuesday signed into law a low-interest loan package to aid U.S. auto makers, but those struggling companies will still have to wait months to find out how and when they can tap the $25 billion designated to smooth their transition to building more fuel-efficient vehicles.
The loan package was approved last year as a way to help auto makers and their suppliers meet fuel-economy standards set by the federal government. But the funding for the package wasn't passed by Congress until this year. One estimate put the total cost to auto makers at $100 billion to meet stricter efficiency standards that require vehicles to reach 35 miles per gallon by 2020.
General Motors Corp., Ford Motor Co. and Chrysler LLC have argued it was essential to get the loan help as soon as possible to rejigger plants to build smaller cars and infuse money into programs for gas-electric hybrids and other vehicles relying on alternative fuels. The recent credit crunch, along with double-digit declines in U.S. auto sales, have only put additional pressure on the auto makers to gain quick access government-backed loans, according to industry analysts.
"The auto loans can't come soon enough," said Kip Penniman, automotive analyst at KDP investment Advisors. Calling the loans a "lifeline" for GM in particular, Mr. Penniman said each of the auto makers will likely need to access some of that funding next year. Detroit's Big Three, once bullish on a turnaround in the auto sector in 2009, now expect to be another challenging year for auto sales in the U.S.
This infuriates me to no end. These companies relied on the gas guzzler model of business -- build it big, powerful and without any concept of fuel efficiency. Price them at a good price point so we make good money on them. Deny the possibility of peak oil whenever possible. Rinse. Repeat.
When that stopped being effective, they started to give cars away with "employee pricing". That means the car companies started selling cars at really low levels -- just barely enough to make a profit (if that). But there was a problem with this model. Consumers are now conditioned to expect car companies to offer fire sale prices on their models. So they're going to wait until car companies offer these prices again before they buy.
And as profits circled the bowel, the car companies are coming to the US government and saying, "lend me a ton of money, or half a million people will be unemployed withing two years." That's the real leverage in this deal -- the employees.
Seriously -- would you make a low interest loan to companies with the following stock charts?
