GM warned that its cash reserves could sink below the minimum level it needs to operate by year's end unless it gets federal aid or can tap other resources.
The key words here, "by year's end". If they do hit the floor, massive ugliness ensues. Watch what happens. The auto industry wants $50 billion on top of the $25B, and it needs that $25B right now. Reaching that "minimum level to operate" for GM looks like this-
Perceptions of running out of cash can quickly turn into reality at a company like GM. At year's end, GM's outside auditors have to say whether there's substantial doubt about the company's ability to be, in business parlance, a going concern. If the auditors make such a statement, GM will violate a number of credit agreements, including at least $6 billion in loans -- which banks could call back immediately. The automaker would either have to get a waiver from its lenders or secure even more loans.
Or bankruptcy? Don't know about the possibilities of a waiver, and "more loans" seems unlikely, so if the unthinkable happens-
GM and other U.S. automakers need such aid or the domestic auto industry will fall, taking with it nearly 3 million jobs and demolishing the retirement funds of people throughout the country, analysts said. For every job in an assembly plant, there are 7.5 jobs with auto parts suppliers and other companies.
3 million jobs and "demolished retirement funds". Gone. On top of the rapid acceleration of job losses that are already occurring. You can hazard a guess that the ripple effect doesn't stop at 7.5 jobs when you add in things such as consumer confidence and other peripheral factors; the total number is probably incalculable.
Urgent, wouldn't you say? Apparently not if your name is George W. Bush or Henry Paulson.
Obama pressed the Bush Administration to speed the disbursement of $25 billion in retooling loans for automakers that were approved by Congress in September. But the Energy Department said in a conference call this week that it was "doubtful" that any money would be released before next year. Automakers can start applying for loans on Monday under the rules released this week.
Conflicting reports are appearing about the speed at which the $25B can be dispersed. Democratic leaders want to extend the Wall Street bailout to automakers through the TARP program - giving taxpayers a stake in the auto companies - and apparently that option is available under the discretion of the Federal Reserve chairman and the Treasury Department. And considering the fact that they just threw $40B at AIG, it seems that getting the already approved $25B shouldn't even be a question when you look at the consequences of delay.
What say you, Bush people? Want to put the brakes on the impending collapse of the American economy?
The White House said Friday it wasn't planning to extend the Wall Street bailout to automakers without direction from Congress. Paulson has preferred that automakers get aid from the Energy Department program first.
No? Well, alright. Let the legacy be that the Bush administration could have stopped or slowed the freefall, and chose not to. Call it a farewell present to the American people, and the card will read: From the Worst. President. Ever.
Team Obama has stopped short of calling for the current bank bailout to be extended. Perhaps there is a different way to get the $50B, now being labeled as a loan as opposed to a bailout, to the automakers. Both the left and the right sides of the political spectrum have, IMO, callously suggested to "let them fail" - and yes, that is an option... if you want to ensure the possibility that we bring about the next Great Depression. And yes, the automakers and the unions have made mistakes in the past that have helped contribute to the current problem - but none of that really matters now, does it?
We can pay now, which would save an untold number of jobs and help the auto makers move towards retooling for fuel efficient cars that will eventually sell as we provide other forms of stimulus to the consumer and the credit markets loosen up, or we can let the "backbone of manufacturing" collapse and pay later, when millions of workers hit the system through unemployment and other social programs as they lose their retirement and health care and are unable to find a job. Oh, and don't forget the national security implications as well - a country without manufacturing cannot adequately defend itself should the need arise.
The word "urgent" is being tossed around the media, no one has really picked up on the term "by year's end". Maybe that description doesn't really apply - I honestly don't know if GM could skate through an outside audit and delay that "perception" that was mentioned earlier.
Obama meets with Bush today - let's hope that sanity prevails and they all find a way to stop this before it gets even worse.