What is the Auto Industry Bailout?
In case youâve missed all the recent news headlines, the auto industry bailout involves government loans for the Big 3 in the auto industry â Chrysler, Ford and GM. In plain English, Detroitâs Big 3 are heading towards bankruptcy, which could affect millions of jobs, so the government has agreed to step in and help them out with loans.
Is billion too modest?
When the auto industry went to the government for assistance in 2008, the original amount they were requesting was only billion. At the same time, failed mortgage giants Fannie Mae and Freddie Mac was requesting 0 billion to regain their footing in the tough economic situation. The car makers decided that their requested amount was too modest compared to the financial industries request, and raised theirs to billion â the most the government would allow under the current laws.
What should I know about the bailout?
First, you should know that the government isnât only giving loans to Detroitâs Big 3, but also to their suppliers. The loans will be for roughly billion each, with the rest of the billion distributed in smaller amounts to suppliers. These arenât free handouts like most consumers are assuming â theyâll have to be paid back starting five years after theyâre received. However, the interest rates on the loans will be much lower then other loans the industry has had to take out.
Even though the bailout is giving loans to the auto industry, the money still has to come from somewhere. This shouldnât be much of a problem for the US government, which has always been able to shift money around for current expenditures. In addition, the government fully expects the money to be paid back in accordance with the terms of the loan. But one of the issues that many people are having with the bailout is that one of the Big 3 isnât even a public company.
Should the government bail out a private company?
Chrysler, up until a couple years ago, was a public company, meaning their stock was available to the public for anyone to buy. However, in 2007, Cerberus Capital Management bought Chrysler and made it a private company.
This being said, should the government help a private company? Yes, they supply a lot of jobs but is that enough of a reason? Couldnât the government insist on Cerberus making Chrysler public again and making stock available? Many people argue that with the auto industry in crisis, the stock wouldnât be started at too high of a price, and there are probably thousands of consumers and employees who would love to invest in Chrysler. This could give Chrysler the needed funds to help bail themselves out without relying on the government for assistance.
No strings attached?
One concern that many citizens have is the lack of strings attached to the billion deal. The governmentâs only request in using the money is that the Big 3 re-tool their assembly lines and research ways of making more fuel-efficient cars. However, theyâre already doing these things, so there isnât anything new that the industry actually has to do to get the money. This is in sharp contrast to 1980, when the government bailed out Chrysler with a .5 billion loan. In that case there were a lot of requirements that had been met before they were able to get the money, and many people feel the government should do the same for the car industry now.