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Government Extends Loans to Detroit Automakers

This article was written by in Economy. 6 comments.

This is today’s big news, and you’ve probbably heard about it already. This morning, President Bush approved three-year loan to GM and Chrysler which would give these companies $13.4 billion now and $4 billion in February. There are strings attached.

Although the loans have terms of three years, the government will require the companies to pay the balance back in full by March 31 if the corporate leaders cannot find a path to stability. The government will become part owners of the companies and will have oversight of executive decisions. The deal also requires that the automakers limit compensation and benefits, provide competitive wages, and eliminate the “jobs bank.”

The jobs bank allows union auto workers to still receive pay after being laid off, and even the Japanese, non-union automakers have a similar policy. The union has suspended the jobs bank already.

Do you think the automakers are making enough concessions in exchange for these loans? My concern is that even with this money, one of largest government interventions in a supposedly free market economy, the industry might not be salvageable.

Published or updated December 19, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 6 comments… read them below or add one }

avatar Bill M.

Funny how the Government bails them out the Union is Against it. I guess its better not to have a job than to have one with a little bit less benefits.

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avatar David

I’m not against some sort of bailout, but I don’t think the automakers are making enough concessions.

The big three have been extremely inefficient and short-sighted for years, if not decades. The recession didn’t cause their woes, it was just the last straw. Detroit’s refusal to admit any wrong doing leads me to believe that the bailout will only slow the bleeding. Nothing will change, and we’ll find ourselves back in this same situation again.

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avatar Mike

I think it’s a waste of money – do a proper bankruptcy which will force big concessions from all sides. The government can help keep things going during the bankruptcy proceedings. That would be a better use of the money rather than just giving them a bridge loan.

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avatar CJ

I think they need to shut down the unions. After that, then we can talk bailout. Those unions have gone too far.

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avatar Tabby

Free money never teaches people much of anything. If you don’t have to work for it then it will mean nothing to you. Sounds mostly like all their upper management needs to get booted into the street for making such irresponsible decisions with established businesses.

They all had very expensive trains going on a straight track, and somehow managed to run them right off. But who are they ‘limiting compensation and benefits’ for? Would that be the high management who are wasting all the money with their private jets or the factory workers with no money? And it says ‘competitive wages’ .. didn’t you just say that the workers are to get less?

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avatar castocreations

I think the bailout is a horrible idea and it does nothing more than prop up a bad business that in all likelihood will fail anyway. The unions have strangled the golden goose. The companies are not competative and can’t do the things they need to do because of the union rules.

I’m very disappointed that Bush took this step. Companies that can’t succeed should NOT be propped up, especially by the government. It rewards bad behavior and punishes success. There’s such a thing as creative destruction. Letting these companies fail (or restructure if they can) will not leave a black hole…other things fill in and while it would be very painful it would allow for new and successful businesses.

Nobody propped up the horse and buggy industry and things turned out just fine.

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