By Mike Caggeso
President-elect Barack Obama is asking a Congressional lame-duck session to approve $25 billion to $50 billion in rescue aid for Detroit’s crumbling auto industry.
He also wants to appoint a czar or board to oversee the auto industry’s rescue and reconstruction, Bloomberg reported.
Both are steep requests that would require nationwide support – from Michigan state officials all the way up to President George W. Bush. Without 60 seats in the Senate, Democrats would need a few Republicans to cross the party aisle on the vote, should Congress draft and approve legislation by the end of next week’s session.
The calls follow the disastrous earnings reports last Friday from Ford Motor Co. (F) and General Motors Inc. (GM). Ford posted a $2.98 billion operating loss for the quarter ended Sept. 30 and let 1,500 salaried employees go in that time. General Motors reported a third-quarter operating loss of $4.2 billion. The company said it plans to cut 30% of its salaried workforce, but in reality, job cuts at the automotive giant could be much deeper.
Michigan’s other auto titan, Chrysler LLC, is also in bad shape. Like its two peers, it asked to be included in the government’s $700 billion bailout plan.
All totaled, the three automakers employ more than 200,000 Americans, and support millions more U.S. workers indirectly through suppliers and dealerships.
Their collapse could ultimately cost the economy more than 2 million jobs total. And that doesn’t count the estimated 1 million Americans – including many retired autoworkers – who rely on the U.S. auto companies for pension and healthcare benefits.
Multiple Conflicts and Outcomes
The question of whether or not the U.S. government should bail out Detroit’s Big Three is shaping up as the last major issue of George Bush’s presidency and the first major test for President-elect Obama, whose plan to rescue the U.S. economy played a large factor in his election.
At their meeting earlier this week, Obama pressed President Bush on delivering an assistance package to the auto industry. Bush said he’d support aid in exchange for Democrats’ approval of a free-trade agreement with Columbia, the London Times reported.
Bush also agrees with Treasury Secretary Henry M. Paulson that the auto industry needs a lifeline, but it shouldn’t come from the $700 billion allotted to rescue the financial industry.
And it could be one last showdown between Bush and House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.).
Congress Democrats have already begun pushing legislation to help automakers. Meanwhile, GM said outright that it could run out of cash by the end the year if the downward spiral of falling sales and consumer demand continues.
“The auto industry is too big to fail,” Nariman Behravesh, chief economist at IHS Global Insight Inc., told Bloomberg. “While the Obama administration can wait until Jan. 20 to address other matters, on this one they need to move quickly.”
News and Related Story Links:
- Money Morning:
Second, and Possibly Third, Stimulus on the Way as Unemployment Poses Next Major Hurdle for the Economy
- Money Morning:
GM and Ford Burning Cash, Seek Emergency Government Loans
- London Times:
Bush 'rebuffed Obama on car industry bailout'