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Perils of Detroit: What's the Deal?

A proposed bill has been sent to the White House for vetting. It apparently calls for immediate bridge loans to be made available to the Detroit Shrinking Three automakers.
Written by Harry Fuller, Contributor on

A proposed bill has been sent to the White House for vetting. It apparently calls for immediate bridge loans to be made available to the Detroit Shrinking Three automakers. We do know the loans would come from a $25 billion dollar package approved earlier this year. Originally that money was to help Detroit "retool" to produce more fuel efficient cars. "Retool" in this case is a euphemism for try to catch up with the competition from Japan, Korea and Germany.

What's in this bill? Will the White House approve? The bill may not meet the President's demand for only giving money to "viable" businesses. The bill does require the automakers to sell their corporate jets, a symbolic gesture that each of the Shrinking Three has already promised to do anyway. Want a used jet anyone?

The bill proposed will limit executive pay, prevent shareholder dividends until the loans are paid back and the loans will be at 5% annual interest. The federal government would $1 worth of stock warrant in the borrowing automakers for every $5 loaned.

Another national poll has just shown that a week of lobbying and palaver leaves amajority of American taxpayers still opposed to lending money to Detroit. Perhaps suspecting it's a giveaway?

If the bill goes ahead it would create a car boss who'd have veto power over any corporation taking the loan money. GM and Chrysler have both said they cannot continue without loans. Ford might not need to take any loan. The car czar would have review power over any decision valued at $25 million or more, presumably that would include some of the traditional bonuses in the car biz. And any union contract worthy of the name. Further the car boss would come up with a set of rules for the American car makers by the end of the year. That is, if they can find anybody who'd take this thankless, perhaps hopeless, mission. President Bush would be empowered to pick the car czar.

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It's way too early to see what this could do to the Chevy VOLT. Or even that tiny part of Chrysler out in Fargo making those electric GEMs.

CAR LOANS, A HOT TREND

You or I probably couldn't get a car loan now if we wanted one. But loans to car companies seem to be a current trend. Now they're talking loans in Britain, and they don;t even own "their" car companies anymore. Earlier I blogged that Sweden would definitely keep Saab and Volvo going. Saab is owned by GM, Volvo by Ford.

smart car. Courtesy smartcar.usa And on the other side of the pond, big Daimler is thinking small. They are going to produce an electric smart car by 2012. They're also expecting to unveil a prototype of an electric Mercedes at the Detroit auto show next month.

The smart car was originally designed by Swatch and was always meant to be electric, just that for the first ten years of commercial production it's been internal combustion instead. That's the sort of brilliance that led Daimler to try to swallow Chrysler, only to spit it out after corporate intestinal blockage occurred.

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