A Bailout by Any Other Name ...

If it looks like a duck, walks like duck, and quacks like a duck, chances are it's a bailout.

Despite the Big 3 automakers saying their request for a handout from the federal government isn't a bailout, what else do you call the $50 billion in loans they're requesting? General Motors (NYSE: GM  ) , Ford (NYSE: F  ) , and Chrysler are using a fine painter's brush to delineate their being given a loan because of the credit crunch and a blank check to stave off financial ruin.

"Don't say bailout," says GM's corporate vice president. "All the government is doing is underwriting the loan."

Oh, that's all? That's what a bailout does -- it removes the financial risk of failure from the companies themselves and puts it on the taxpayers. It was only a week or so ago we were holding our breath to see if Fannie Mae (NYSE: FNM  ) and Freddie Mac (NYSE: FNM  ) were going to run aground on the shoals of bankruptcy, while the attendant risk of their failures have "only" been underwritten by the taxpayer.

It was bound to happen, though. As the Treasury Department began opening the country's purse strings to prop up a list of financial institutions, it was only a matter of time before other industries began lining up hat in hand looking for their share of the dole.

These are massive loans the automakers are asking for. The airlines only got $10 billion in loans and $5 billion in cash after the Sept. 11 terrorist attacks. The $1.2 billion bailout of Chrysler back in 1979 looks like pocket change in comparison. And just how many times does a company get to bite at the apple?

Yet credit drying up is an important process in the economy as it makes up for the excesses that ran rampant beforehand. Moreover, the failure of certain businesses for their poor judgment is ultimately what keeps the economy going. There should be no businesses "too big to fail."

General Motors ignored the signs of what increasing oil prices would do to consumer demand. It continued to produce gas-guzzling Hummers and SUVs that it's only now considering getting rid of. Ford as well was blind to the effects of what high gas prices would mean to its F-150 pickup truck. For 17 years the pickup truck reigned supreme as the top-selling vehicle in the U.S. The comeuppance it got was Honda (NYSE: HMC  ) selling more Civics.

Yet they still don't get it. Even as they ask for handouts to save themselves, they seem all too ready to fall back into the ruinous paths they took previously. According to The New York Times, GM feels that big trucks and vehicles "still represent a great opportunity to register sales."

So in essence what GM, Ford, and Chrysler want is for the taxpayers to bail them out of the lousy business decisions their executives made -- and apparently are willing to make all over again. Despite their talk of "deserving" this handout from the taxpayers, the only thing they merit is the support of car buyers, and only if they make vehicles that they want.

As sales of Ford and GM vehicles give way to Toyota (NYSE: TM  ) , Nissan (Nasdaq: NSANY  ) , and Honda, the Big 3 make it seem like so much water off a duck's back.

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Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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  • Report this Comment On August 29, 2008, at 5:33 PM, POpinion wrote:

    If a loan is a bailout. America has bailed out a few Countries and Companies already. Some even on Wall Street. Let's call a loan a loan. We all have had one at one time or another. They wouldn't need the loan in the first place if Government hadn't fowled up Free Trade Agreements.

    Let the American's who turned their backs on American Companies pay their debt to American Companies for believing Foreign is better. Nothing like sending American dollars to Japan and paying taxes to help out an American Company to teach them a lesson on Patriotism.

    American Companies are part of America just like Japanese Companies are part of Japan and don't think for one minute Japan doesn't back their Companies in World Trade. You can't even sell an American car in Japan but they sure can sell here.

  • Report this Comment On September 12, 2008, at 8:49 PM, GG129 wrote:

    American cars just suck face it PoOpinion they just keep making gas guzzlers and want me to pay for it with my tax money in my opinion use that money to create jobs for all the layed off autoworkers instead of giving it to a company thats just going to ask for more money once they burn through that cash to.

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