Big Three Bailout: The $25 Billion Gamble

Senate Republicans and President Bush might oppose the proposed $25 billion bailout to ailing automakers in Detroit. However Speaker of the House Nancy Pelosi has stated that the House is ready to loan the car manufacturers the money necessary

The controversial auto bailout is starting to meet resistance from Republican Senators Richard Shelby of Alabama and John Kyl of Arizona. They have called the ailing auto industry “dinosaur” whose “day of reckoning” is coming. Auto manufacturing represents almost 4% of the GDP of the United States and directly accounts for 200 thousand jobs plus. But in the past few years due to exorbitant labor costs and a failing product line the Big 3 have posted some of the most tremendous losses in their history. For 2007, GM losses were $39 billion. Speaker of the House, Nancy Pelosi, has stated that the House is ready to loan the car manufacturers the money necessary. Although she has given no price on how much this will cost the American taxpayer. Despite a slim majority in the Senate, Democrats may have to wait until 2009 for any action due to President Bush’s opposition to the auto-maker bailout. GM is hemorrhaging about $1 billion a month and it predicts it will be bankrupt by the end of the year. Senator Kyl has said,

“Just giving them $25 billion doesn’t change anything. It just puts off for six months or so the day of reckoning.”

If an agreement on the bailout is not reached in time the car manufacturers have the option of filing Chapter 11. This would freeze credit requirements and liquidity issues as well as give the car giants a chance to streamline and restructure. Though the industry has claimed this would erode consumer confidence an consumers would be reluctant to purchase vehicles from a company that may not last the life of their car or truck.