Our American friends may get all they wish to know (and more) about the Detroit Three seeking government bailouts. Having failed to overcome opposition from Republican lawmakers to bailouts, the Bush administration decided to act on its own after some hesitation. As this purports to be a blog about international political economy, I would be remiss in not pointing out that this beggar-thy-government strategy utilized by the Detroit Three is confined not only to the United States but extends to a whole lot of other places where they have leverage. That is, where they can deploy that time-tested plea of "give us some 'bridge loans' to tide us through because we employ X amount of your citizens in this vital industry." In addition to America, you have the Detroit Three asking for money in:- Europe - European subsidiaries (I almost typed "subsidies") of Ford and General Motors (Opel / Vauxhall) are part of a group of companies making cars in Europe asking EU governments for handouts to the tune of EUR 40B. It seems the EU has balked at this very large sum. Instead, plans are on the drawing board to give them "only" EUR 5B [1, 2];
- Argentina - The government in the Latin American country is giving automakers, including Ford and GM, subsidized financing for entry-level models to move cars off dealers' lots.
Canada will provide the struggling auto sector with $4-billion in emergency loans in a bid to avoid a "catastrophic" collapse of the industry, Prime Minister Stephen Harper said Saturday, as he urged the automakers to use the funding to get their businesses in order.The Detroit Three keeps using this euphemism about "bridge loans." I always like to think of Alaska's famous bridge to nowhere as an apt metaphor for these automakers. With even the most bada** European and Japanese automakers feeling the pinch (Toyota now expects its first annual loss in the postwar era), what chance do these rank amateurs have of competing in global markets?
The announcement by Mr. Harper and Premier Dalton McGuinty in Toronto came a day after U.S. President George W. Bush offered $17.4-billion U.S. in emergency loans to General Motors and Chrysler. "We are doing this on the assumption that we cannot afford either in the United States or Canada a catastrophic short-term collapse," Mr. Harper said. "But on the other hand, we are doing this with the knowledge that the automakers must change the way they're doing business in a very serious way and must bring their products on their costs into line with the market place."
The Canadian plan will provide General Motors Canada with loans of up to $3-billion and Chrysler Canada will receive up to $1-billion — a total based on the U.S. aid and proportional to their Canadian production. The companies will get the money in three instalments, with the first portion coming Dec. 29.
Unlike the American plan, the Canadian aid will also extend additional account receivable insurance coverage for automotive suppliers and create a new facility support access to credit to consumers.
Mr. McGuinty, who has been pushing for aid to the sector, said Ontario will provide $1.3-billion of the total emergency loans package to General Motors and Chrysler. "Here in Ontario we have 400,000 people and their families who rely on the auto industry so that they can put food on the table and keep a roof over their heads," said the Ontario premier who thanked Harper for the support. "What the Prime Minister and I are saying today is that those people and their jobs are worth fighting for."
I once joked that the US automakers needed an American Bob Geldof to push their cause, Live Aid style. It certainly appears that they've made quite an appeal to governments now spanning three and a half continents to raise so much state aid. Nevertheless, given their past histories, I doubt whether this will be enough to sustain them through the challenging years ahead. As ever, i remain convinced that the logical course of action is to sell the American automakers to the Chinese. Politically incorrect as it may seem, it's the best business choice.
