Bailed-Out Car Cos. Want More Money; Bloomberg Fails to Challenge Conservative Assumptions Claim Despite Past Flubs
Anyone who has followed the decline of General Motors and Chrysler since the two companies received a combined $17-plus billion in bailout money in December won't be surprised at the news that they need more -- or at the government's convenient weekend timing of the news.
The financial cliff on which Chrysler stands was a given by the time its first bailout installment arrived. But, as shown in early March in a post by yours truly at BizzyBlog (mostly mirrored at NewsBusters), GM's sales non-performance has deteriorated to the point where it has become worse than Chrysler's during the two months following the George W. Bush-decided, Barack Obama-supported bailout decision:
January's and February's disastrous sales results have probably made GM's situation at least as perilous as that of its smaller competitor.
On Saturday (naturally), we learned via Bloomberg that GM and Chrysler "may" need more money ("may" apparently now means "as sure as the sun rises in the east") -- lots more:
GM, Chrysler May Need More Aid Than Requested, Rattner Says
General Motors Corp. and Chrysler LLC may need "considerably" more than the $21.6 billion in aid they requested, which was based on optimistic recovery plans, said Steven Rattner, the Treasury’s chief auto adviser.
President Barack Obama’s auto task force is assessing proposals from GM and Chrysler to decide whether to recommend U.S. assistance or tip the carmakers into bankruptcy. Rattner made the comments yesterday on Bloomberg Television’s "Political Capital with Al Hunt," airing this weekend.
The task force will give its "sense of direction" by March 31, Rattner said. The companies have received $17.4 billion since December and asked for the additional $21.6 billion in aid last month, an amount that depends on achieving turnaround plans that are "somewhat ambitious," Rattner said.
“It could be considerably higher, I won’t deny that,” Rattner said, when asked whether U.S. aid sought could rise. "Like all management teams they tend to take a reasonably, slightly perhaps, optimistic, view of their business. So it could be more, I can’t rule that out."
Greg Martin, a GM spokesman, said yesterday its restructuring plan has "a conservative outlook." The company will continue working with the task force "and we’ll keep them informed of our liquidity needs," Martin said in an e-mail.
What is particularly galling is that news organizations like Bloomberg that should and probably do know better are letting the companies get away with saying they were overoptimistic before. GM pointedly claimed the exact opposite twice in the past four months:
- In early December, in its aid request to Congress, GM said that it would "only" need $18 billion to "weather the current economic stresses, and .... position the new GM to be profitable."
- On February 18, GM, as paraphrased by the New York Times, "vowed ..... that its latest request for federal aid would be the last it would need to carry it through the biggest reorganization in its history."
But now we're supposed to believe that the companies' forecasters have finally gotten it right.
There's a high probability that they are still wrong. GM, and the government, badly underestimated the bailout's impact on consumers' willingness to buy its vehicles, either for ideological reasons (opposed to bailouts), practical ones (concerned about warranty and repair issues), or both. The company's request for even more money than anticipated are likely to worsen that perception problem.
Here's a former pet phrase notably missing from news coverage of both GM and Chrysler: corporate welfare. The low-rate loans involved, especially if they are never repaid (which appears more and more likely), dwarf the amounts those who have complained about "corporate welfare" in the past could ever hope to cite.
Mark Zandi of Moody's is looking smarter with each passing day. In early December, he "suggested during one of the auto bailout hearings on Capitol Hill that the Big Three could need between $75 billion to $125 billion over the next two years if they are to survive." The additional requests by the bailed-out will push the current number to over $40 billion ($17.4 + $21.6 plus "who knows?") -- well past halfway to the Zandi's low end of $75 billion. Even that doesn't take into account the $5 billion bailout of suppliers that Treasury whipped through last week, and previous bailout billions provided to GMAC and Chrysler Credit.
Also missing from news coverage: How candidate, president-elect, and now President Obama's relentless pessimism, his promises to starve the nation of fossil-fuel energy, and his pledges to raise taxes in the teeth of an economic downturn convinced consumers, perhaps in the millions, to postpone major-ticket purchases, particularly of vehicles.
The consequences of these positions, echoed in earnest by congressional leaders Nancy Pelosi and Harry Reid since June of last year, are quite ironic, given that the Democratic Party is supposedly best buds with Big Labor. United Auto Workers union members have borne the brunt of an auto-industry downturn that Obama, Pelosi, and Reid helped to make much worse than it should have been. But the well-being of the rank and file was apparently unimportant compared to scoring electoral and then vindictive points. This is yet another crucial connection the establishment media probably won't make any time soon.
Cross-posted at BizzyBlog.com.