Have Detroit's Bailout Notions Been Quashed?

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It's as if everything's happening at once these days. For instance, it was just a day after Treasury Secretary Paulson's nose-thumbing at Lehman Brothers that General Motors (NYSE: GM  ) unveiled its new Volt. But the car's ultimate development may depend on how effectively Mr. Paulson has hidden the taxpayer life-preservers on which a host of sliding companies had come to depend.

And with the AIG deal, maybe the last of those life preservers have been used.

What does the Volt really have to do with Lehman and AIG? Simply this: The big three automakers -- GM, Ford (NYSE: F  ) , and Chrysler -- have been lined up at the giveaway window, seeking government backing in the form of low-interest loans as they attempt to quick-step from their gas-guzzler mentality to an epiphany that suddenly has them paying attention to fuel efficiency. But if Detroit's really looking for a public handout, Mr. Paulson may have effectively told them "nyet."

GM officially rolled out its battery-powered plug-in Volt prototype yesterday. The car, which is still in development but is scheduled to go on sale in late 2010, is purported to be able to go about 40 miles on its electric battery power. Not bad for mostly city driving. Once the battery has lost its oomph, a four-cylinder engine will swing into action, recharging the battery and running the car.

But while all this sounds terrific, Japan -- through public-private partnerships --thus far is outstripping the U.S. in the development and manufacture of lithium-ion batteries that can power both today's hybrids and the next generation of plug-ins. This includes companies like Hitachi (NYSE: HIT  ) and Sanyo Electric. There's still some kinks to be worked out, as illustrated by Toyota (NYSE: TM  ) running short of batteries earlier this year for its hot-selling Prius hybrid. If the Japanese solve those kinks, some here are concerned that we'll exchange foreign oil dependence for foreign battery dependence.

One response has been for the U.S. Advanced Battery Consortium with the Department of Energy to award Johnson Controls (NYSE: JCI  ) $8.2 million for the development of lithium-ion batteries. The USABC is made up of Ford, Chrysler, and GM. Hmm. At the same time, the U.S. car companies have been seeking at least $25 billion in government loans, at least in part for battery research and manufacturing.

All this leaves me with three questions:

  • Will the Detroit three be granted their requested loans?
  • If not, will they be able to survive until they can crank out a meaningful number of plug-ins and other fuel-efficient vehicles?
  • And will they be able to rapidly reduce the Japanese battery advantage?

Pardon me if I'm skeptical on all three fronts.

Motley Fool CAPS players have decorated Toyota with four stars, versus one each for GM and Ford. Which of these companies do you expect to be outperformers?

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Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned. He does welcome your questions, comments, or driving directions. The Fool has a disclosure policy.

Read/Post Comments (6) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 17, 2008, at 11:10 AM, MikeMcCullough1 wrote:

    Nuclear? Why do we Amerircans have to follow the others; what happend to leadership?

    Why can't we build a small nuclear engine which requires no fuel and run's electric motors?

    Do you think the NRC will stop the US from trying be the best/fastest/greatest?


  • Report this Comment On September 17, 2008, at 11:41 AM, BobMichigan wrote:

    Great Idea!

    We'll use a flux capacitor and put it in a delorean!

  • Report this Comment On September 17, 2008, at 12:00 PM, Rhynokey23 wrote:

    This hole question is stupid I've made a small steam type turbine that uses r134a insted of water and can gat as much as 3kw out of it. They don't want free power, services based economys because we loose control. The government wanted fusion but when they created the Z machine

    at sandia did they use it? no

  • Report this Comment On September 17, 2008, at 4:36 PM, Brettze wrote:

    UAW pension funds can bail GM and Ford out themselves. Then UAW will still strike to get money back . If govt bail GM and Ford out, UAW will still strike and get double than otherwise. It islike haveing the cake and eat it. UAW pension funds has hundreds of billions dollars sitting around idle collecting lousy interest and dividends in some portfolios somewhere. UAW has to put money where its mouth is. If UAW bail GM and Ford out, I will call it even..

  • Report this Comment On September 17, 2008, at 4:37 PM, Brettze wrote:

    The idea is not to get UAW so overexcited that they would dare to think about when to strike again...

  • Report this Comment On September 17, 2008, at 4:38 PM, Brettze wrote:

    Look at Boeing and the Machinists!! Boeing is losing market share to Airbus of Europe, yet the machinists here strike... The machinists just dont care or understand the money stuff and shareholders...

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