Fed to Help The Big 3 Automakers, Likely Bailout GM

US House Speaker Nancy Pelosi has announced today that the big three Detroit automakers will be getting part of the $700 billion government bail out. Pelosi did not confirm how much money the companies will get but they are asking a combined $25 billion in loans. The amount of money that will be given to GM should be sufficient to bailout GM, which desperately needs a cash infusion or it will run out of money entirely by early March 2009. Pelosi said that the big three would need to develop better, more fuel efficient vehicles and restructure “to ensure their long-term economic viability” as a condition part of the deal.

United Auto Workers President Gettelfinger told reporters that automakers are struggling because of problems beyond their control, including the credit crisis. He also said that union labor costs are not the main problem and they only account for up to 10% of any vehicles cost made by the big three (GM, Chrysler, Ford). I personally believe the union is cutting into their bottom and line and making them less competitive because the other foreign automakers don’t pay nearly as much in total labor cost per vehicle.

I said it before that GM will be bailed and that we should bail GM out because if it fails, a catastrpohic chain reaction will hit the economy hard that could eliminate 1 million jobs alone. The Center for Automotive Research has also warned that the collapse of the Big Three could eliminate up to 3 million jobs and more than $150 billion in tax revenue for the US Fed over the next three years. However, all 3 wouldn’t fail, but even GM alone would hit everyone hard, especially the people of Detriot, which could result in more foreclosures. Scary stuff.


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Hercules holds a B.Comm Finance from Ryerson University in Toronto, Canada. He is a Chartered Financial Analyst (CFA) level 3 candidate. He was previously a contributor at FiLife, a finance website owned by Dow Jones and IAC. Write to hercules@business2press.com
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