More Videos
- Clint Eastwood ‘Surprised’ by Reaction to Chrysler's ‘Halftime in America’ Ad
- Tesla Unveils First SUV: Model X
- Can Ford Make a Smooth Transition in Management?
- US Auto Industry Made Stronger by Increase in Exports
- Will Super Bowl Ad Buzz Generate Sales Buzz?
- Boeing Inspects 787 Dreamliner for Possible Repairs
- Will Toyota Rebound to #1 in 2012?
- What Fueled Record January Auto Sales?
- The Three Year ‘Pinch’ Is Helping New Car Sales
- Ford Earnings Disappoint, Causing New Concerns and Questions for Investors
MOST SHARED
- Maine Caucuses a Chance to Right the Romney Ship
- Greece Warns Bailout Rebels of Unknown, Dangerous Path
- UK's Cameron Calls for Truce on Bonuses
- Greek Debt Saga Back on Center Stage for Markets
- How Rescuing Greece Could Destroy the World
- How to Date a Wall Street Man
- Warren Buffett's 5-Minute Plan to Fix the Deficit
- Dividend Payout Could Hit Record Amount This Year
- In Search of America's ‘Hottest Forecasters’
- Dow vs. S&P 500: Which is a Better Investment?
- Mick Fleetwood on the MP3 ‘Dumbing Down’ of Music
- Avis on the Road to Strong Growth: Analyst
- Private Homebuilders: Dead Men Walking
- LinkedIn’s Growth Is Already Priced In: Analyst
- The Real Reason Behind Bank of America’s Rally
- 5 Hedge Funds’ Top Stocks Soar After 2011 Rout
- This Valentine’s Day Love Is Served on a Silver Platter
- Maine Caucuses a Chance to Right the Romney Ship
- Greek Debt Saga Back on Center Stage for Markets
- China President-in-Waiting to Sample Slices of America
- Greek Cabinet Approves EU, IMF Bailout Bill
- MF Global Trustee Sees Shortfall of $1.6 Billion
- Iran to Announce 'Very Important' Nuclear Progress
- We're Not Greece: Italian Prime Minister Monti
- UK Police Arrest Five at Murdoch's Sun Newspaper
- Private Homebuilders in the US: Dead Men Walking
RSS FEED
Behind The Wheel
Text Size 
Auto Bailout: Republicans Tap Into Worry Among Americans
 |
CNBC.com Big 3 Bailout |
They have clearly articulated what bothers them and others about the current effort to save Detroit automakers.
Their argument comes down to this: The bailout is not tough enough and this current bailout will only set up up the Big 3 to keep coming back for billions more as they try to restructure in the months and years ahead. Whether you agree or disagree with that premise, you have to give the Republicans credit for clearly articulating their concerns.
What is not clear is what option they would prefer for GM, Ford, and Chrysler. They say a Chapter 11 bankruptcy is a better option. They say the federal government can provide the debtor in possession financing a bankrupt company will need to restructure their companies. They say the federal government can back warranties so people will have confidence to buy a car or truck from a bankrupt company.
So are they right? In some cases yes, but in other cases no.
Could the Feds provide the DIP financing the automakers would need in a Chapter 11 bankruptcy? Yes. Heck, it is the only option since the traditional DIP financing banks don't have the funds that would be required for the Big 3. And in fact, the current bailout package is essentially the federal government providing DIP financing, even though the automakers would not be in bankruptcy.
Would the federal government backing warranties convince potential car buyers they should buy a car from a bankrupt GM or Chrysler because the warranties would be backed by Uncle Sam? No. Don't fool yourself. If the Big 3 go bankrupt, the buyers will stay away in droves.
People are not going to spend $30,000 on a new car from a bankrupt company because the residual and perceptual value for that car will be a fraction of what it was. They also will steer clear of a dealer with a bankrupt auto maker because they will wonder to themselves, "How can I be sure this guy will be here to service my car in a year or two years from now?"
Do you think knowing Uncle Sam will guarantee a new car warranty will overcome those concerns? No. That said, you have to take your hat off to the Republicans. They have tapped into the real worry among Americans that the bailout passed in the House of Representatives is just the start of the Big 3 coming back for billions more in the months to come.
_____________________________________
Click on Ticker to Track Corporate News:
- Ford Motor [F
Loading...
()
]
- General Motors [GM
Loading...
()
]
- Nissan [NSANY
Loading...
()
]
- Honda Motor [HMC
Loading...
()
]
_____________________________________
Questions? Comments?
Data is a real-time snapshot *Data is delayed at least 15 minutes
