Monday, March 9, 2009

Automakers: Driving Up The Debt

Thomas & Krisher from the Associated Press reported on Obama's auto task force.
"Members of the Obama administration's autos task force will test drive the Chevrolet Volt rechargeable electric car and tour a Chrysler LLC pickup truck
factory when they visit the Detroit area on Monday, an administration official
said Sunday.---GM and Chrysler are living on $17.4 billion in government loans
approved by the Bush administration last year, and they have asked for a total
of $39 billion. Obama appointed the task force to review the automakers'
viability plans and decide if they should get additional aid.

The reason GM went to the government for loans in the first place is because no one else would loan them money. And why should they? GM was losing money, and the perception of lenders was that it will continue to lose money... and so it has. The tax payer dollars that the government 'loaned' to GM will not be paid back if the company goes bankrupt.

Essentially, the government invested tax payer dollars into a company no investor in their right mind was willing to give money to -- a company that had plummeting sales and a negative profit margin.

Now that the first round of loans has run out, GM is back asking for more. The idea behind a couple of people going to test drive a $40,000 car in order to determine whether to loan GM billions of dollars is nothing short of asinine.

People test drive cars to determine whether or not they want to buy it, not whether or not someone else wants to buy it. The fact is, whether or not the Auto Czars like the $40,000 car, there may not be a market for it, if for no other fact than few people can afford a $40,000 car.

Even with the $7,500 tax rebate offered at taxpayer's expense to Volt buyers, it would still be priced at $32,500 -- over $10,000 more than a gas-sipping Toyota Prius.

Giving money to GM is a double edged sword. Not only is that money going down the drain, where an inefficient company continues to produce cars that no one is buying, it also diverts billions of dollars away from other areas of the economy.

As an extension of the bailout programs the government is undertaking, these auto loans only serve to siphon assets away from productive, tax-paying, areas of society and subsequently funneled toward a company that sells cars for less than it costs to make them.

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