Editor’s note: The following article was written by one of the newer additions to the Planet Waves blogging team: Shanna Philipson. –RA
Dear Friend and Reader,
Q: What’s bigger than a breadbox, but smaller than a house?
A: The SUV in your neighbor’s driveway that’s about to get repossessed.
Detroit is the latest to get in line for the $700 billion dollar government bailout package, and unlike Wall Street’s byzantine financial formulations and their equally confusing bailout proposals, this crisis is just the right size and shape for the average American to understand.
For the last fifteen years Detroit has enjoyed an illusion of endlessly profitable SUV sales. Consequently American automakers saw no reason to downsize or resize or rethink its monster car formula–or the way it did business, except to function in Jupiterian terms of escalating scale: Super-size me, baby! Now some domestic car makers are saddled with uncertain energy futures and super-sized debt in the form of unsold inventory and bad auto loans. If you believe their side of the tale, dismal truck and SUV sales are bleeding Detroit dry; at the current rate of loss, General Motors will be bankrupt sometime in 2009.
According to this MSNBC report, General Motors, who lost $18 billion in the first two quarters of 2008, is seeking help from Washington in the form of a $10 billion loan to buy the steadier Chrysler and merge the two companies in the hope that GM won’t go broke. And what’s in that for our folks in DC? Partial ownership in the new, merged entity.
Not surprisingly, the idea is controversial. Do we want the government owning a direct stake in our car manufacturers? Moreover, do we have the means to affect a rescue reminiscent of the 1980 salvaging of Chrysler? MSNBC suggests GM’s offer won’t get far.