As we reported previously, the 'Big Three' American car manufacturers (Ford, GM and Chevrolet) saw sales decline by an average of 35% last month. Now, they have reportedly gone cap-in-hand to the government to seek a $25billion loan to stave off impdending bankruptcy.
The US automotive industry once thrived, fuelled by the beating-hard of Detroit, but the once-booming industry has long been in decline, and the problem is now approaching its critical moment. If the plants and development centres still operating in Detroit go out of business huge job losses will occur. A ripple effect would see parts suppliers and dealerships all over the country also feeling the pinch.
The Detriot Free Press reports that the Bush administration has now rejected the proposed assistance packages put forward so far. It is understood the President is demanding more caveats and conditions before granting the Big Three access to the $700 billion bailout designed for the financial services industry.
Many legislators remain uncomfortable with this apparent bending of the rules on who gets access to the funds, and it is expected that any support given will come with the same sorts of conditions faced by financial institutions. These include closer governmental control, with the requirement for all business plans to be state-approved, a government veto on major corporate decisions, and limits on executive bonuses.
The Senate and House of Representatives have voiced different proposals, both centering around the idea of limited support tied to strict conditions. The House's proposal is being seen as the stricter of the two, however neither can be seen as a 'blank cheque'.
The Bush administration's caution is itself now a short-term factor, however President elect Barack Obama is known to back a similarly cautious approach, reportedly remaining committed to the idea of a bailout that gives the government more control over the struggling industry.