Remember the first time you went into a dealership to buy a new car because you truly felt you could afford a new car loan? Remember the sticker shock when you ran the numbers and said to yourself, "I didn't really think it would that much." Now you know how many people feel when they see it might take $50 Billion to fix GM.
If that doesn't make your eyes roll, think about this: The price tag could go past $50 Billion.
This is ugly cost of re-structuring the country's largest auto maker. We knew it would cost a fortune, but many people are shaking their heads right now and saying to themselves, "How much are we going to spend to clean up GM?" Since December, the Treasury Department has loaned GM $19.4 Billion. Now, the company will need $7.6 Billion after it goes into bankruptcy next week.
None of this should surprise people who have followed this story from the beginning. Remember, when the big 3 CEOs testified on Capitol Hill last fall, economist Mark Zandi said the auto industry would need between $75 Billion and $125 Billion to avoid bankruptcy. In other words, saving the Big 3 as they restructured was going to be a $100 Billion project. So now that two of the big 3 have gone into Chapter 11, why are so many people recoiling at that price tag? My guess is because nobody knows for sure exactly how much GM in bankruptcy will cost.
One thing is clear, the Treasury Department is so far down the road with GM, it can't turn back now. It's already committed to making GM and Chrysler leaner and more competitive. If there's any good news for Treasury it's the fact Chrysler has gone through bankruptcy quicker, and with fewer hiccups than expected. In fact, the "new" Chrysler could be out of bankruptcy and part of an alliance with Italy's Fiat by the end of next week. The old liabilities of Chrysler will be fought over in bankruptcy court for months to come. GM will not have as smooth or as quick of a trip through bankruptcy court. It's a bigger, and far more complex company than Chrysler. And as we are now learning, GM in bankruptcy will cost taxpayers far more than many originally expected.
Addicted to Oil
Tonight at 8 Eastern on CNBC, be sure to watch a special report. CNBC Reports: Breaking the Oil Addiction. Over the course of an hour we'll look at how several industries are trying to re-make themselves with new energy sources, new technology, and a new commitment to thriving on less oil. It's an hour that promises to shed new insight into how far American business.
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