Life Support For GM and Chrysler

President Bush has gone ahead and put General Motors and Chrysler on life support. Each has gotten loans from the government to cover operations through March of 2009.

President Bush said, "Allowing the auto companies to collapse is not a responsible course of action." Bankruptcy, he said, would deal "an unacceptably painful blow to hardworking Americans" across the economy.

Some $13.4 billion of the money will be available this month and next, $9.4 billion for General Motors Corp. and $4 billion for Chrysler LLC. Both companies have said they soon might be unable to pay their bills without federal help. Ford Motor Co. has said it does not need immediate help.

Bush's plan is designed to keep the auto industry running in the short term, passing the longer-range problem on to the incoming administration of President-elect Barack Obama. The last $4 billion of the loans announced Friday would depend on release of the second half of the big Troubled Asset Relief Program fund.

At that point, if the companies have not turned themselves around, they will have to repay the loans.

I'm sorry, but does anyone believe that these two companies, which are all but bankrupt as I write this, going to have the capacity to repay anything, let alone billions of dollars worth of loans to the government? We are never going to see this money again and the only ones who will benefit from this is the UAW, who is busy watching as their workers are getting paid 85% of their salaries as the manufacturers idle their factories because the cars simply aren't moving off the showroom floors and need to reduce inventories drastically.

The mess will be left for incoming President Obama to deal with, and I'm sure he's going to have no better luck in getting the UAW to give up the ghost than President Bush, although Obama is much more likely to push for a government takeover of both companies and remake them in the eco-image.

Here's the offer sheet for Chrysler and for General Motors.

Thus far, Ford has said it does not need federal assistance. Kudos to them for not sucking taxpayers dry - for the moment.

I have extremely low expectations for either GM or Chrysler to turn around their business operations - with or without government intervention. They've had decades to do so, and have actually made their business even less profitable. It has nothing to do with the production of SUVs, but with operating costs that run higher than their competition to the point where the US automakers were losing money on every vehicle. They were making some money back on financing, but when the credit crunch hit, that last bastion of profitability unmasked the stark reality of a failed business plan.

Some question the automakers reliance on SUVs and gas guzzlers, but that misses the mark. The reason that the automakers went in that direction in the first place was that consumers - the people who actually buy and use the cars - wanted bigger vehicles to carry around their stuff and CAFE rules sent the automakers scurrying for a solution. It was in the form of truck-based vehicle platforms that could carry large amounts of items, and they quickly grew into the hottest selling vehicle category.

Now, as oil prices rose, some of those people sought cheaper alternatives and the US automakers couldn't compete with the hype of the Toyota Prius and other hybrids, even though the up front costs for purchasing a Prius would take years to repay even after taking high oil prices in to account. For all the success of the Prius, it is still selling only a fraction of the number of vehicles than the standard Corolla or many other brands, including many within the GM lineup. GM's problems are simply too numerous to catalog here, but the SUV isn't one of them - not when other manufacturers were rushing to get in on the category.

Chrysler's problem is even more dire - particularly since it had the brand that pretty well invented the SUV - the Jeep. The company has pretty much destroyed the brand credibility and its reliability and ratings are consistently in the dumps, despite its pedigree. Its minivans, another category that Chrysler grew and dominated in the early years, have become a wasteland because of a failure to modernize and upgrade its product line in comparison to Toyota or Honda's products.