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The fate of the US automobile industry continues as the top energy-related story of the week. Unexpectedly low sales figures for November, coupled with an admission by GM that they will be out of operating cash by the end of December, make the situation dire. GM is asking for $4 billion to stay afloat until the end of the year.
In return for federal loans and guarantees that now have increased to $34 billion, the manufacturers will close factories, lay off tens of thousands of workers, and eliminate model lines.
Outcomes to this situation are all over the map. Detroit, with the help of its unions and friendly legislators, is vigorously waving the “great depression” flag, claiming that the American economy will be finished unless GM gets $4 billion and Chrysler $9 billion by the end of the month. They reject reorganization under bankruptcy, even the “prepackaged” version, as unworkable, suggesting that it is just a way for Wall Street and law firms to earn fat fees.
Many in Congress are skeptical that Detroit can turn itself around. GM will lose $20 billion in 2008 and all of the restructuring plans carry the implicit assumption that the economy will get better in a year or two, leading to a rebound in car sales.
The congressional leadership, the incoming administration and the White House all agree that something needs to be done, but differ on where the money should come from. The Democrats seem to favor taking it from the $700 billion already voted to aid the financial industry while the White House wants to use the $25 billion slated for retooling the industry to build smaller cars.
There is now general agreement that Detroit is in such bad condition that something will have to be done before the new Congress and administration takes office. The CEO’s of the big three will testify before Congress on December 4th and 5th, and votes are scheduled for next week.