US auto industry bailout: The Big Three go up the Hill

18 November 2008

Washington: A deadlocked Senate has already begun debating two alternative plans, from both sides of the aisle, to rescue a tottering American automobile industry. While the Democrat plan would have Treasury secretary Henry Paulson allocate $25 billion from the $700 billion financial bailout package for the industry, the Bush administration has resisted the move and instead asked the Congress to revise a previously approved $25 billion loan package meant to facilitate long-term changes within the industry.

This does not excite GM executives who say the $25 billion loan money would come with enough conditions attached which would ensure that it cannot be used to solve their cash crisis.

The debate is now centred squarely on an industry that has been the epicentre of the American industrial economy for more than a century. The largest of the auto industry's Big Three, GM, is also the worst afflicted and is currently busy raising operating cash aimed at seeing it through a number of days, let alone weeks or months.

With a collapse imminent, if no bailout should be forthcoming, the market has already begun assessing likely damages to the economy and does not like what it sees.

While those in favour of a bailout ask for treatment similar to that accorded Wall Street, claiming the industry is equally a victim of the global financial crisis, those against point out that problems plaguing the industry are more endemic and easily predate the crisis.

Those in favour of the bailout point out that what is at stake are millions of jobs, worth more than $100 billion in wages.