Buddy Can you Spare a $Billion? How about $18b? Automakers Ask Congress for Loans

December 03 2008 / by joelg
Category: Energy   Year: 2008   Rating: 3

225_fiftybilliondollars.jpgBy Joel Greenberg

What Happened?
Responding to the US government's request that they provide plans for what they would do with government loans, the Big Three automanufacturers presented their plans.  Here's an overview of what they're asking.

The Big Three automakers all describe a 'perfect storm':

- sales down 30% or so from last year due to downturn in economy
- credit markets frozen so they can't offer credit to car buyers, accelerating the decrease in sales.
- All in various stages of transition to new technology (smaller vehicles, electric vehicles, more fuel efficient gas engines & drive trains, etc.)

'Help us through this rough patch,' they all seem to be saying, 'and we'll help you by not tanking the economy even further.'  GM is the most direct in articulating the threat.  "A failure by GM will likely trigger catastrophic damage to the U.S. economy..." while Chrysler goes into detail why a bailout is preferable to bankruptcy.  Ford's the most upbeat. "We note that Ford is in a different situation from our competitors, in that we believe our Company has the necessary liquidity to weather this current economic downturn – assuming that it is of limited duration." 

Here's what they're asking for:

Loans Requested:Chrysler

Chrysler: $7 billion secured loan by 12/31/08.
Ford: $9 billion line of credit with 10 year term; silent on implementation date.
GM: $4 billion by 12/31/08.  $4 billion by 1/31/09. $2 billion feb/mar '09. Additional $2 Billion by 12/31/09.  $6 billion line of credit. $18 billion in term loans and revolving lines of credit (but not clear if this includes previous, or not).

In Exchange for Loans:Ford

Chrysler: Open to negotiation in terms of stock, but no details.
GM:  Some of the $12 billion can be preferred stock.  No details on amount.
Ford:  Wants just a loan.

Interesting Wrinkles:General Motors

Chrysler:  Says they're the largest EV producer in the US
Ford: Wants to solve the healthcare crisis in the US once and for all.
GM: Thinks the gov't should be in the VC business. 

Why is this Important to the Future of Energy
Transportation is the main use of oil in the US.  Any significant change in fuels will have a economic, political, and environmental impact. What all auto manufacturers need are customers.  But is credit the only answer to getting customers?  What about lower price vehicles so consumers don't need to rely on credit?

Has marketing failed us?  Marketing is the descipline that decides what's to be built.  Traditional marketing works best in stable environments.  It can't anticipate a world with different assumptions than the present or immediate past.  Therefore, marketing as practiced by the auto manufacturers couldn't anticipate this downturn.  

Maybe the automakers need to scrap their marketing programs and incorporate different marketing tools like scenarios, lead user research, various futurist methodologies etc. 

Could Tata Motors find a market in the US for their Nano?  They developed that vehicle using different assumptions that may fit better with our current situation.

Other implications and issues with the plan:

- what about giving money to develop the much needed SmartGrid so that we can really support a US consumer fleet of electric vehicles?

-in exchange for the loans, shouldn't we ask to make it easier to buy vehicles, such as asking dealers to get behind repealing laws that prevent purchasing vehicles via the Internet?

- shouldn't we require stronger committments to new technology that dramatically increases fuel efficiency and lowers carbon emmissions?  All manufacturers compare their fuel efficient vehicles to Toyota's, but none of them compare their vehicle's to the Prius.  Shouldn't we require that the Prius' fuel efficiency be the bar?

 - Joel Greenberg

Image Credit - ZeroOne  Flickr Creative Commons Attribution Sharealike 2.0

 

Comment Thread (3 Responses)

  1. If the government is so adamant about investing in the auto industry, they should do so with Tesla instead.

    http://www.mercurynews.com/opinion/ci_11130750

    Posted by: AdamEdwards   December 04, 2008
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  2. I think that a consumer advocate advisory committee ought to be assembled to critically seek alternative solutions to the big bail out, and to raise the question: what could these companies have done to prevent this catastrophe, and what have other companies successfully accomplished to keep them from being in the same boat as these big three. If there is any reasonable doubt that this is their own fault, they should be forced to suck it up. If there is any reason to think that that money could be better spent supporting newer, younger, alternative auto companies, then that money should be spent supporting newer, younger, alternative auto companies. People would might bear in mind that the owners of the dealerships of these particular companies have a reputation for supporting conservative government policies, policies that historically avoid doling out tax payer money.

    Posted by: Adam Cutsinger   December 05, 2008
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  3. I love how all the CEOs went to the first Congressional hearing in private jets, but for this latest meeting they all drove cars. The sillyness never ends!

    Posted by: martymcfly   December 05, 2008
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