What the Pros Say: Don’t Cheer the Automakers Bailout
A tentative deal has been reached between the White House and congressional Democrats regarding a $15 billion proposal for bailing out the U.S. automakers. But CNBC's experts are skeptical on the measures and reckon the markets' positive reaction to the news will be unsustainable.
Will the US Auto Bailout Succeed?
Unless the conditions for the money being given as part of the Federal aid to auto makers are very strict and stringent, the markets are unlikely to react positively, believes Jack Bouroudjian, chairman of Capital Markets Technology.
Auto Bailout Process Not Done Properly
The U.S. auto industry has been failing for years, says Jack Bouroudjian, chairman of Capital Markets Technology. He tells CNBC that the market reaction shows concern that the auto bailout process is not being handled properly.
Risk of Auto Failure
It would be very, very dangerous to tell the auto sector that it can fail, Michala Marcussen, director of strategy and economic research at Societe Generale Asset Management said.
"If $15billion can push this problem out and delay it for a while, I think it's probably a very good choice in this situation," she said.
"If we look at Treasury issuance, it's going to be huge next year. We're looking at over 1.5 trillion of new Treasurys being issued and the question is then 'how do we deal with that? Who's going to buy it?'" Marcussen said.
Bankruptcy Still Hanging over Autos
It looks like the US is nationalizing the auto industry, Simon Grose-Hodge, director and investment strategist at LGT Bank in Lichtenstein said.
"People seem to be taking this as good news and I guess it's better than if we did nothing at all. But all we've really done is given these people a little breathing room. Bankruptcy still hangs over a couple of these companies and at the end of the day, they're still producing cars that nobody wants to buy. And giving them $15 billion isn't going to change that. It's a much longer-term problem that they've got to deal with, and it doesn't look like we're getting any closer to any sort of a solution," told CNBC.
Will Obama's Plan Help the Real Economy?
Selena Ling, head of treasury research & strategy at OCBC Bank has reservations about how Obama's proposed stimulus plan will impact the U.S. real economy in the near-term.
Avoid Overaggressive Stimulus
Overaggressive fiscal and/or monetary stimulus should be avoided, especially for developing countries, says Hans Timmer, manager of Economic Prospects Group at the World Bank.
Auto Bailout Too Small
"The conditions in the automotive market may deteriorate significantly over the next 60 to 90 days and the $15 billion package may not be significant enough to make a dent," Fred Dickson from D.A. Davidson & Co. told CNBC.
Sharp Slowdown Ahead
Developing and emerging economies are set to slow very sharply next year, warns Hans Timmer, manager at the Economic Prospects Group at the World Bank.