December 10th, 2008
11:31 AM ET

Auto Bailout Shifts Into High Gear

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2008/images/12/10/art.cars.jpg]
Andrew Torgan
CNN Financial News Producer

Detroit’s Big Three say bankruptcy is not an option, and it may not have to be if they get their bailout. But that doesn't mean there won't be strings attached - and someone to pull them. The proposed auto bailout gives broad powers to a presidential appointee (a “car czar”) and the opportunity to push for major changes in the industry, such as the extraordinary power to compel "interested parties" in the industry (lenders, auto dealers and union representatives) to make concessions.

One thing is certain about the proposed auto bailout: it's going to end up being more expensive than $15 billion. In fact, CNNMoney.com writes that it's likely to be more costly than even the $34 billion that the companies were asking for last week.

Hybrid and electric cars play a big part in the business plans automakers have presented on Capitol Hill. But as Congress and the White House get closer to a deal, green cars probably won’t save the auto industry anytime soon. For starters, hybrid and electric cars are unlikely to be very profitable - or profitable at all - for years to come. And with gas prices approaching a five-year low, hybrid sales have fallen off a cliff. At the same time, auto experts say green cars are the key to the automakers’ long-term survival, even as money is running out. Detroit’s Dilemma is today’s Energy Fix.

$34 billion is small potatoes compared with $700 billion… and the Treasury Dept. must do more to help struggling homeowners and explain how its $700 billion financial bailout program is being managed. That’s the conclusion of a congressional oversight panel. "American taxpayers need to know that their money is having a tangible effect on improving financial stability, credit availability, and the economy as a whole," the panel said draft report says. "As a first step, Treasury needs to provide a detailed assessment of whether the funds it has spent so far have had any effect - for better or worse - in these areas." The final report was presented to Congress this morning prior to the start of House Financial Services Committee hearing on the bailout. The hearings guest of honor is Neel Kashkari - the Treasury’s point man on the bailout - who’s facing a lot of tough questions.

Wall Street is getting a bounce today following sharp losses Tuesday amid progress toward the auto bailout. But while many investors may put money into stocks today, plenty of others are holding on tightly to their cash. One indication of that: The Treasury Dept. sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The government also sold $30 billion of four-week bills today at 0% for the first time since it began selling the debt in 2001.

Wachovia CEO Robert Steel is joining the list of financial leaders going without bonuses for 2008. Steel took over the beleaguered bank in July and is overseeing the sale of the company to Wells Fargo. Earlier this week, Merrill Lynch’s John Thain dropped his request for a $10 million bonus after being blasted by New York Attorney General Andrew Cuomo and Morgan Stanley's CEO John Mack gave up his bonus for the second year running amid the worst financial crisis since the Great Depression.

Eastman Kodak, the 128-year-old photography company, says it’s freezing executive pay and suspending matching 401(k) contributions because of the deepening global recession.

Gas prices fell 1.5 cents to $1.683 a gallon. That’s the 84th consecutive decrease. According to AAA, the last time the national average price for a gallon of regular unleaded gasoline was near the current price was February 28, 2004, when the national average was $1.688. 3 states have regular unleaded gas prices of $2 and higher. 47 states and the District of Columbia have regular unleaded gas prices below $2.

Oil prices are edging higher after dropping nearly $2 on Tuesday. Crude is hovering around $43 a barrel. Traders are looking at the latest weekly inventory report that shows a smaller-than-expected rise in crude stocks, and they’re also focused on OPEC's meeting next Wednesday, where the group is expected to cut output. There’s even speculation that Russia may coordinate a production cut with OPEC to try and end the five-month slump in crude prices.

But oil’s recent decline is responsible for a rare bit of good news today for homeowners who heat with oil: the Energy Department is predicting that home heating oil will cost less than it did last winter. Of course that's bad news for anyone who locked in at high rates last summer. Consumers who heat with fuel oil are expected to pay nearly 25 percent less than last winter - making the average bill about $1,500, which is $383 less than 2007. Heating with natural gas is expected to average about $860 this winter, just slightly below last winter.

Filed under: Andrew Torgan • Bailout Turmoil
soundoff (10 Responses)
  1. Jim

    In my opinion, the people responsible for bailing out the big 3 should be the oil companies. They are the ones who have made record profits from the consumption of oil from these vehicles and they are the ones who have had a direct impact of sales by dictating the price of fuel. I'm tired of hearing how many billions in profit the oil companies post each quarter. While the US government gives oil companies huge tax breaks for no apparent reason, the automakers have to beg just to get a loan. Don't get me wrong, I agree that the automakers need to do some serious remodeling of their business plan, but lets put the blame where it belongs. Oil!

    December 10, 2008 at 2:04 pm |
  2. Bill Johnson

    Detroit Auto bail-out (bridge loan)

    To any one who will listen!

    I’m a retired Detroit Auto Worker and have a horse in this race and I’m tired of Senator Shelby of Alabama and his vendetta against the Detroit Auto Industry and the Union employees.

    Why does the national media and the cable news channels let him off the hook? He’s no different than me; he also has a horse (several) in this race as well. There are several foreign implants in his state and Alabama has made many concessions to attract them to their state. Senator Shelby, should be held accountable as the Auto executives. The press should investigate him and his state and report the real reason why he is against the survival of the Detroit Auto industry.

    I would like to hear the real truth.

    I think the same can be said about Senator Corker of TE.

    December 10, 2008 at 1:37 pm |
  3. R. Donald - Texas

    Personally, I am against the auto bailout. While I understand there are economic implications if some of the big three go under, at the same time, bailing them out does not help them fix their problems, it simply burdens the taxpayer with their lack of efficiency and capability.

    If a company is not making money, you make changes, you get out of markets where you are not profitable, focus on the ones where you have a core competency, and try and build a stable platform. The auto industry is no different. GM have highlighted they will continue to focus on Chevy, Cadillac, GMC and Buick. They still dont get it. We dont need a Cadillac Escalade and a GMC Yukon and a Chevy Suburban – pick one, and do it well !

    As for Chrysler, I dont think they should even be at the table. As a private equity company, they need to be looking within. Cerberus have stated that they have other fiduciary obligations which prohibit them from injecting capital. What about the governments obligations to it's taxpayers......

    December 10, 2008 at 1:28 pm |
  4. Diane N.

    What about the all the small businesses who can't keep their head above water who provide needed daily services to the public. My ex's boss committed suicide back in June because she couldn't make her truck payment and mortgage because all her money went to her small business. Her partners couldn't help either. Why don't they sell their jets at the big three and make pay cuts, paycut you say? Yeah, there are a lot of people busting their asses everyday for far less than what employees at those plants make. I've never heard of an assembler position making as much as those people do, people who make even more important products such as medical equipment or package foods get far less. Hey if the rest of us have to make due with initially small saleries, why the hell can't the lines people at the big 3 do the same. I know real mechanics who don't make as much money as those assemblers on that car line. Mechanics who actually have to fix those cars. Not just assemble them.

    December 10, 2008 at 1:01 pm |
  5. kishen c.rao

    I think these automobile companies need to produce fuel-efficient cars and give solid warranty...people are so scared to buy without these nowadays...

    December 10, 2008 at 12:52 pm |
  6. Ron L - Michigan

    I am a supporter of the $15 Billion Dollar loan because I think letting one of them go bankurpt would be one of the DUMBEST things America has done since we GAVE the consumer electronics industry to Japan in the 60's and 70's. I know several of the Republican Senator are against it. The question that needs to be asked to any of them is this..Several economist say that 80% of the people will not buy a car that has filed for bankruptcy. How do they KNOW the consumer will believe the U.S Government will give out hundreds of thousands of Warranties? And more than anything else..What if they force the companies to do this AND THEY ARE WRONG!!! That sales plummet to the point that instead of needing a total of $34 Billion they end up needing $100 Billion. Will they also guarantee that additional money?? Many newscasters are too meek with these Senators who basically know nothing about the complexity of the automotive industry and yet they are going to dictate how fast they can downsize and restructure. You along with all the other news channels need to ask more pointed questions. These Senators a playing with FIRE and if they are wrong up to 3 million people will get burnt. NOT THEM!! Thank you for your time

    December 10, 2008 at 12:31 pm |
  7. Steve Mallott

    I have a couple of questions:

    1-Is Toyota wanting a bailout?
    2-Is Honda wanting a bailout?
    3-Im needing help with my mortgage will someone please help me.

    Ford and GM should have made better cars like Toyota and Honda then they wouldnt be in this situation.

    December 10, 2008 at 12:08 pm |
  8. Annie Kate

    "Hybrid sales have fallen off a cliff" – what about car sales in general? Are non-hybrid sales much better? I think it is unwise to believe that the cost of oil/gasoline will stay low; it will go back up and there is a finite supply of it. Buying a hybrid is a good move now or whenever you replace your automobile. Gas here is 1.57 a gallon at the moment and my car has a 20 gallon tank; I fill up once a week. My daughter has a hybrid; her car has a smaller tank; she fills up once a month though. I want a hybrid – preferably one that is American made by American workers and I'd like a nice selection to choose from. So I am hoping the auto industry can renovate itself and its products to fill that need. While green cars may not prove profitable anytime soon to the car industry I doubt that Henry Ford made much profit on the first Model T's he made. You have to start somewhere.

    December 10, 2008 at 12:07 pm |
  9. Cindy

    This auto bailout should have major strings attached! Congress actually should have spent as much time on the Wall Street and bank bailout as they did on this one and we would have known where all the money went. As it stands the money is missing and we are no where near the end of this economic mess getting any better!

    Bailing out the Big 3 probably won't be the last huge bailout that we are asked to make. Wonder who's next in line with their hands out?


    December 10, 2008 at 11:55 am |
  10. Michael Odegard

    I understand there would be harder times ahead with the implosion of the auto industry; but I don't owe those workers, CEOs or shareholders anything but contempt. I can understanding saving the strongest of the big 3 and turning it into an automotive Amtrak, for national security reasons; yet giving the big 3 a bridge loan (bail out by another name) will damage national security by preserving our weakest links. We need tougher economic times to make us stronger. We don't need a pity party for the ignorant and/or corrupt.

    December 10, 2008 at 11:44 am |