Audio – Why help Detroit?
As with most issues, there are two sides to this one as well. and both were heard this week at the Reuters Autos Summit in Detroit.
The U.S. government has committed to spending $25 billion to help the U.S. automakers finance needed changes in production, manufacturing and design. And if the Detroit automakers get their way, that number will end up being more like $50 billion.
The automakers say the loan guarantees are critical, while opponents have said that the money is essentially a government bailout of an industry that has made its own bed and should now sleep in it.
But in the past few days, Washington, D.C. has been a pretty busy place on the government-assistance front (Freddie Mac, Fannie Mae, AIG).
This could be good and bad for the automakers.
Clearly, the government has made some decisions on what industries are too big to fail and has shown a willingness to pony up funding. That’s a plus for the automakers.
But on the downside, the government HAS just spent several hundred billion dollars and someday, someone will have to repay that money. Will they want to spend more?
Some might still ask why the government should help Detroit.
But Tim Leuliette, chief executive of Dura Automotive Systems gave a pretty compelling discourse on why to fund the companies.
Leuliette knows a little something about finance and a little more about Detroit — he served as chairman of the Federal Reserve of Chicago’s Detroit branch.
His point was that as bad as it was to see companies like Lehman Brothers fail and AIG get into its serious trouble, a failure of a major Detroit automaker would be much worse. He spells out an interesting case.
Leuliette was one of the featured speakers at this year’s summit — whch runs through Thursday in Detroit. Up next for Reuters Summits — our first Reuters Restructuring Summit on Sept. 22-26. Considering all that has happened in the past few weeks, restructurings could be THE hot story for the rest of 2008.