Governors Press Fed, Treasury to Help Auto Industry
Friday, October 31, 2008
The clamor for federal aid for the troubled U.S. auto industry is growing louder.
Six state governors, a Ford executive and others added their voices to the debate over whether to free up government money to rescue Motor City and help General Motors merge with Chrysler.
The governors of Michigan, Kentucky, Ohio, Delaware, New York and South Dakota banded together this week to pressure Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke to use their regulatory authority to make it easier for Detroit automakers to access credit and gain addition funding.
"As governors, we appreciate your recent efforts to provide liquidity to the credit and financial markets, and urge that you use your broad regulatory authority to ensure that your continued actions help promote liquidity within the U.S. auto industry," said the letter sent Wednesday. "This industry is vital to millions of citizens in our states and across the country."
Much like the Michigan congressional delegation, which sent its own letter to Paulson and Bernanke last week, the governors said Detroit's Big Three are too big to fail. The auto industry employs millions of Americans and it is one of the largest buyers of steel, aluminum, iron, copper, plastics, rubber and electronics. And a large network of suppliers, vendors and dealers rely on the economic stability of Motor City, they said.
GM's chairman and chief executive, G. Richard Wagoner Jr., was in Washington this week to ask the Bush administration for financial assistance for a merger with Chrysler. A Ford executive said yesterday that his company would also expect financial assistance if GM prevails. Executive Vice President Mark Fields told reporters that the company wants "policymakers and the powers that be" to know "the challenges facing the industry but also the challenges facing us and that there's a degree of parity," according to Bloomberg.
Automakers have appealed to the Treasury Department to allow them to tap into the $700 billion rescue plan, but Treasury has given them no indication that help would be coming soon, according to sources familiar with the matter. GMAC, GM's financing arm, is in talks to become a bank holding company so it can take advantage of federal assistance.
Pressure is building in other quarters as well. Auto parts makers Visteon, TRW and Lear all announced big third-quarter losses yesterday. TRW and Visteon are both planning to cut their salaried workforces.
Car dealers are also feeling the squeeze.
GMAC recently began requiring some dealers to repay their loans faster because of the credit crunch. GMAC notified many dealers nationwide that they will have to pay down the wholesale financing for vehicles older than 180 days in their inventory.
"Turbulence in the markets reduced our access to funds and increased the cost of funds where available," GMAC chief executive Alvaro G. de Molina explained in a follow-up letter to the California New Car Dealers Association. "In response, we adjusted our credit policy to reflect the reduced level of funding availability."
Typically dealers use GMAC financing to buy vehicles from GM, paying interest while the cars and trucks sit on the lot. The dealers pay back the principal when a vehicle is sold. But as consumer confidence declines, more unsold vehicles are sitting for longer periods on lots. This week, GM said its worldwide sales fell 11 percent in the third quarter.
"This is just zapping our dealers of their working capital," said Peter Welch, president of the California New Car Dealers Association. "This is a total drain. If they have to make curtailment payments, they can't order new cars. The orders they're sending into GM are virtually down to nothing."
Donald Hall, president and chief executive of the Virginia Automobile Dealers Association, said all of his 550 members received a letter from GMAC.