The Impending GM/Chrysler Bailout

Despite the substantial (about 20%, as of market close on Thursday, since I made my stock purchase last week Tuesday) drop in GM’s stock price, and all the associated recent bad news for GM, I remain convinced a bailout in some form is coming.  And here’s part of the reason for my certainty:

From CNN Money (from The Business Sheet, which I am not familiar with… from Some Assembly Required):

“If the Big Three carmakers were to cut U.S. operations by 50%, 2.5 million jobs could be lost in 2009, according to a study released Wednesday.

The Center for Automotive Research reported that the total employment impact includes nearly 250,000 jobs lost at the automakers and nearly 800,000 at suppliers.

…

In economic terms, cutting operations in half would reduce personal income by more than $125.1 billion in the first year, and $275.7 billion over three years, the center said. Such a decline in personal income would cost the government tax dollars — $49.9 billion in 2009 and more than $108.1 billion over three years.”

It just makes too much sense if you ignore the moral hazard component (and by ‘ignore’, I mean opt not to inject it into the debate as it hasn’t been part of the conversation among decision makers so far).  The $10 billion or so that is estimated to be necessary to make the GM/Chrysler merger occur wouldn’t even make the front page with the dollar amounts that have been sent to the much more odious financial sector.

Had John McCain somehow won, I imagine George W. Bush would be less likely to leave the automotive industry reeling through the end of the year, however, should the situation become desperate enough, I would expect he would make the perhaps politically difficult decision to save the long-faltering American automakers.

I believe all that is keeping a bailout from being completed are the political considerations and the appearance the Federal government saving a company (or companies) that have been hemorrhaging billions (and making fairly shitty cars) well before the housing bubble burst.  I believe that is why direct merger assistance was discarded so promptly and why there seems to exist so much talk of somehow re-routing the $25 billion of approved loans to the automakers to develop fuel-efficient technologies to facilitate the merger, as well as somehow folding an automaker bailout into the TARP .

The most likely outcome to me (and I believe the announcement that the “next one hundred days could represent the most crucial time in the history of the troubled company and entire U.S. auto industry,” according a top GM executive) would for GM to announce a string of horrible news with no hope for any independent turn around over the next month until the utter failure of GM’s management (and the dire situation) becomes broadly clear to union members, automotive sector employees, lawmakers, and the general public and the lawmakers can act without fearing the voter reprisal that accompanied the first TARP passage attempt.

But that’s just my guess.  And my view could be (is almost definitely) very skewed by the 20% paper loss I just ate, as of 4:00pm EST October 6, 2008.  I gambled on a bailout and knew it was a gamble.  I guess I’ll have to wait to get my government cheese.

… and the cow goes moo