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It's gone from long shot to sure thing and back to sorta, kinda, maybe. The bailout of the auto industry has ridden some rough road lately, and although a vote is possible in the House today, it's the nuts and bolts that may end up proving its undoing.
The general consensus is that General Motors (NYSE: GM ) needs the help most -- and soon. Of the $14 billion being considered, the lion's share would be shoveled to it. Ford (NYSE: F ) has decided to forgo any handouts right now, saying it's financially fit enough to survive, but it wants a line of credit of between $9 billion and $13 billion just in case.
Chrysler, while also in need of some short-term financing, presents a bit more of a conundrum. Its majority owner, Cerberus Capital Management, has been unwilling to commit much toward helping the carmaker, and some in Congress wonder why taxpayers should spend money when even its owners don't want to go there.
Any bailout measure looks likely to contain four main components:
- A "car czar" to oversee the turnaround and rule on any further handouts.
- Stock warrants for the government, so taxpayers can benefit if the carmakers survive.
- Suspension of dividends.
- Limitations on executive compensation and "golden parachutes" for departing execs.
The "car czar" would have significant oversight powers and would be required to recall the loans if GM and Chrysler aren't aggressive enough in crafting a firm profitability plan by the end of March. Upon accepting the loans -- at interest rates of 5% for five years and 9% for two years thereafter -- the companies would have to cede stock warrants to the government equal to at least 20% of the loan it provides to each firm.
Cerberus' participation remains a sticking point, as it also has another end game going in that it's the majority owner of GMAC, the financing arm of GM, which it is trying to convert into a bank holding company to gain access to Treasury's TARP funds.
All sides say they want to assist the companies if it means there will be a viable, profitable industry at the end. Tossing money at businesses that are doomed to failure serves no purpose. Yet achieving a consensus is no easy task, particularly with most polls showing little appetite among the public for another bailout after the $700 billion thrown at Wall Street.
With Ford not needing the money and Chrysler turning into a lightning rod for opposition to any bailout at all, it may be that the final bill will end up being an assistance bill solely for General Motors. And as some in Congress are looking for CEO Rick Wagoner's head to roll as a precondition of any deal, this may be a Faustian bargain Detroit might yet regret.
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