Exhaust Notes #28: Bailing Out the Big Three? It's Not a Bailout!
- September 15, 2008
- Exhaust Note
- Posted by Ed Kim
- Comments Off on Exhaust Notes #28: Bailing Out the Big Three? It's Not a Bailout!
There’s been a lot of talk over the last few days about a bailout for the Big Three. The Big Three have been struggling due to a lot of factors (fuel prices that favor smaller vehicles, the economy, labor and legacy costs, etc.) and some even posit that bankruptcy could be the only way out!
One of the issues at the center of the discussion is whether the Big Three deserve a bailout at all. Well, let us – your fearless VehicleVoice editors – attempt to put some clarity to this situation!
First of all, let’s get this out of the way: THERE IS NO BAILOUT! This is $25 billion in guaranteed loans. Any manufacturer who takes a loan is required to pay it back. As guaranteed loans, the lenders are ensured that if the automakers don’t pay the loans back, the government will. Interest is low at 5% to help maximize the financial resources that manufacturers can allot towards developing and manufacturing these new greener technologies. But this is NOT free money, folks.
Second – and this is a key point – these loans are a component of the Energy Independence and Security Act of 2007. This didn’t just float in out of thin air when the Big Three’s large truck and SUV products started suffering this year as a result of $4 per gallon gasoline. No, the proposal for these loans long predated these events. These loans are specifically for the purpose of helping automakers retool for greener and more fuel-efficient technology. Few would dispute that we need these technologies now and for the road ahead.
Third, the loans aren’t just for the domestic Big Three and their domestic suppliers. However, preference is given to those manufacturers who are retooling plants that are at least 20 years old. That means that most of the import transplants are less likely to benefit from these loans. However, one clause in the bill stipulates that at least 10% of the available funds must be set aside for smaller automakers and suppliers. So while the Big Three will be the greatest beneficiaries of these loans, others will benefit as well.
Of course, we all want to see the Big Three not only survive, but thrive. We’ve seen some amazing new products and ideas from the Big Three as of late (GM in particular). Yes, it could be argued that the Big Three caused many of their own problems. But that shouldn’t mean that they should not receive any assistance (especially at such minimal expense to taxpayers since the money is a loan, not a handout) to help them be competitive in this new, burgeoning age of the socially responsible automobile. There is great opportunity to help make America a major player in the greening of transportation in terms of both technology development and manufacturing. We need not cede leadership in these areas to the Asian and European automakers. In fact, the long term survival of the American auto industry depends on it given that (in this writer’s opinion) the focus on efficiency is here to stay. Last time we checked, oil isn’t renewable and global thirst for it is growing exponentially thanks to huge developing markets like China and India.
Upcoming vehicles like the Chevrolet Volt demonstrate that America is capable of thinking way out of the old-fashioned V8 truck-shaped box. It would be a great shame to let this developing story wither so soon.