Bailout Seen for the Big Three

Dismal sales, increasing oil prices, and election politics could push the US Congress to pass a $50 billion loan package bailout for Detroit’s Big Three.  The bailout has been touted as the Three’s key to success.

Car Sales Decline

General Motors, Ford Motor, and Chrysler reported on Wednesday that sales of cars have been declining by 20 percent from a year ago.  This is caused by the shifting preference of American car buyers favoring fuel efficient small cars rather than gas guzzlers SUVs and Pick-ups.

Detroit’s Big Three are trying to catch up on hybrid car models being rolled out by Toyota Motors and Honda Motor as they closed Pick-up truck assembly lines.  

GM and Ford’s junk bond debt ratings and Chrysler’s precarious capital put Detroit in an uncomfortable credit squeeze, making the shift almost impossible.  Getting funding for the shift would be difficult even on normal situations, said GM spokesman Greg Martin.

Martin added that the market is suffering a crunch and as the uncertainties continue, Americans do not want to buy a full-sized truck anymore.  This led the Big Three to deploy an army of lobbyist at the Democratic and Republican Party’s conventions.

Hoping on Speedy Approval

The Big automakers are pinning their hopes on the speedy passage of the loan measure as this would also speed up their retooling efforts.  With the bailout money in place, the American automakers can push forward in making smaller fuel efficient cars.

Barack Obama and John McCain have supported the bailout loan package proposed by the three automakers.  The two camps are likely to gain the favor of vote-rich Michigan and Ohio due to their favorable response on the bailout proposal.

The White House also voiced its approval for the said bailout proposal.  Dana Perino, White House Press Secretary said that President George W. Bush is aware of the proposal and was open to the approval of the loan package.  Perino said they are talking with Congress leaders and Industry insiders regarding the matter.  

The Automakers however need concrete actions and said that they cannot relax until the bailout package has been approved by Congress, signed into law, and the funds released for its implementation.

Legislation is needed in allowing car manufacturers and suppliers to borrow at Treasury bills rates for a 25 year term.  This is a way for the conversion of plants into assembly lines of fuel efficient small cars.

Automakers, because of their poor financial status, are arguing against measures to borrow from the open market as this would entail higher interests rates.  The Big Three said this is not a bailout package at all.

The companies can accelerate their conversion and retooling thus allowing for faster technological and economic growth in the American car market.