Are US Automakers Getting Same Treatment as Banks and Financial Companies?

The House just approved a $15 billion loan to the auto industry to help the Big Three keep going a bit longer. The bill has yet to be approved by the Senate although there is growing opposition. This seems like much tougher treatment than what the financial companies received. What going on here?

The House just approved a $15 billion loan to the auto industry to help the Big Three keep going a bit longer.  The bill provides financing to prevent the imminent bankruptcy of the Big Three and their supplier network.  There is now talk that the bill will face obstacles in the Senate and may not be passed.  Some don't believe the bailout will save any jobs as the companies will ultimately go bankrupt.  Other Senators don't think the car Czar has has enough authority. 

Either way, the automakers have faced a grilling not seen by the banks and finance companies who received lost tens of billions more and needed a much larger bailout.

In principal I am not in favor of this bailout.  I believe, like many others that the problems with GM, Chrysler and Ford are largely of their own doing.  They built shoddy cars for too long, ignored the trends, and allowed labor costs to grow and fester. 

But that's not what's irking me.  What's bothering me is the relative ease with which the banks and financial companies have been give literally trillions of dollars and yet the car companies have to beg and plead to get a measly $15 billion.  Let's examine the difference:

  • The auto executives have agreed to receive only $1 of salary next year while the big banks are still paying out mult-million dollar bonuses to the CEOs who presided over their downfall.
  • The banks were complicit in creating lending products and derivatives that they didn't fully understand.  The car companies produced bad cars.
  • The collapse of a few banks would still leave many others available to provide credit, if they see fit to do it (they apparantly don't, even with billions of tax payer capital).  The collapse of the car companies would send millions to the unemployment lines, make billions in GM, Ford, and Chrysler bonds worthless, and lead to a ripple effect across thousands of suppliers and ancillary industries.
  • The collapse of select banks and insurance companies would hurt the country's finance industry while the collapse of the automakers would hurt the country's industrial might. 
  • The automakers have agreed to the appointment of a car czar to oversee their reform the use of the funds.  Wall Street continues to operate largely free of any new regulations.  Billions of TARP money has gone unaccounted for and is now being paid out in bonuses.
  • Saving the banks and Wall Street firms has cost in excess of $1 trillion dollars while the automakers are asking for $60 billion total.
  • Wall Streeters are Ivy League educated while the automakers are largely blue collar.

If the government is going to had out money, then it needs to create criteria for who should and who shouldn't get it.  Because right now it looks like favoritism and an unhealthy preoccupation with toxic banks is draining this country's treasury.  I don't really see why the financial sector has received such preferential treatment.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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Comments

  • Ruth

    December 15, 2008

    Good article. Looks like the NY Times read it also:

    http://www.nytimes.com/2008/12/14/business/14gret.html?ref=business

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