About a month ago, this blog discussed Detroit's request for $25B in federal aid but it seems to have gone unnoticed during the creation of the $700B TARP.
As reported here, the original idea for the $25B in aid was that it was supposed to help ease burden on automakers who were mandated to improve their fuel efficiency 40% by 2020 as described in the Energy Independence. Thus, it was meant to be a long-term subsidy designed to help fuel R&D. Unfortunately, due to the economy and Detroit's pattern of behavior, it seems highly unlikely that the federal aid will ever be used for this purpose.
It turns out that October has been a terrible month for the domestic automakers. They have been burning through cash at a faster rate than any had forecasted, and GM and Chrysler are now seeking to merge in order to stave off filing for bankruptcy.
In addition to the $25B in aid, which has yet to be disbursed, GMAC (a GM subsidiary which holds auto mortgages) is looking to convert to a bank holding company in order to access the $700B in TARP funds. Furthermore, GM and Chrysler have asked for an additional $10B in federal funds in order to effect their merger.
What happened to reduced dependence on oil? Politics aside, it seems to me that the $25B will now never find its way into R&D in order to improve fuel efficiencies. Perhaps the money was better spent funding providing equity or debt capital to alternative energy or clean tech start ups and established companies. Indeed, if a private sector solution is not to one's liking, then there are plenty of government funded research programs at academic institutions and government labs which are perfectly equipped to start an organized research effort (see Manhattan Project or Apollo Program) with an end goal in mind.
Perhaps it's not to late. There has been talk of the government taking warrants in a combined GM / Chrysler entity which should allow it to push its energy policy through a private organization. Given that curbing gasoline usage in the transportation sector is the most important way to solve the country's energy needs this will make the government a long term partner in this sector. Thus, the government will create for itself a lever in the marketplace in addition to current regulatory mechanisms (fuel efficiency and emissions standards).
As reported here, the original idea for the $25B in aid was that it was supposed to help ease burden on automakers who were mandated to improve their fuel efficiency 40% by 2020 as described in the Energy Independence. Thus, it was meant to be a long-term subsidy designed to help fuel R&D. Unfortunately, due to the economy and Detroit's pattern of behavior, it seems highly unlikely that the federal aid will ever be used for this purpose.
It turns out that October has been a terrible month for the domestic automakers. They have been burning through cash at a faster rate than any had forecasted, and GM and Chrysler are now seeking to merge in order to stave off filing for bankruptcy.
In addition to the $25B in aid, which has yet to be disbursed, GMAC (a GM subsidiary which holds auto mortgages) is looking to convert to a bank holding company in order to access the $700B in TARP funds. Furthermore, GM and Chrysler have asked for an additional $10B in federal funds in order to effect their merger.
What happened to reduced dependence on oil? Politics aside, it seems to me that the $25B will now never find its way into R&D in order to improve fuel efficiencies. Perhaps the money was better spent funding providing equity or debt capital to alternative energy or clean tech start ups and established companies. Indeed, if a private sector solution is not to one's liking, then there are plenty of government funded research programs at academic institutions and government labs which are perfectly equipped to start an organized research effort (see Manhattan Project or Apollo Program) with an end goal in mind.
Perhaps it's not to late. There has been talk of the government taking warrants in a combined GM / Chrysler entity which should allow it to push its energy policy through a private organization. Given that curbing gasoline usage in the transportation sector is the most important way to solve the country's energy needs this will make the government a long term partner in this sector. Thus, the government will create for itself a lever in the marketplace in addition to current regulatory mechanisms (fuel efficiency and emissions standards).
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1 comment:
I do hope it is not too late to impose fuel-efficiency standards. I think any rescue packages now should have stipulations of increased fuel efficiency by a certain year. If the companies do not meet those goals, perhaps the interest or even the principal they have to pay back to the government should increase.
I also disagree with the basic idea of a "bailout" for the GM and Chrysler. As critics have warned, where does this stop? Is the US economy going to be completely nationalized by the time the financial crisis is over?
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