The Bailout You Didn't Hear About

9/29/2008 03:05:00 AM

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ventureone-road The "Big Three" car makers, Ford, GM and Chrysler, are getting help from the government, in the amount of a $25 billion loan, but don't call it a bailout according to Detroit.  "It's not a bailout," said Chrysler Vice Chairman Jim Press.  "It's a good investment between industry and government."

However, opinions vary.  "Oh, I'd call it a bailout," said Peter Morici, economics professor at the University of Maryland.  "[The Big Three] are having increasing difficulty borrowing money in the private credit markets because there's a high risk of default.  In that environment, giving them a government loan is a bailout."

GM had a $38.7 billion loss in 2007 according to the Associated Press, but it's not a bailout, right?

In the beginning, the 'Big Three' wanted $50 billion, but they settled for $25 billion.  Under the legislation, car makers and suppliers will get loans for the development and manufacture of motor vehicles that will boost their fuel efficiency by at least 25%. Detroit had wanted no such restrictions on the loans, but to be free to allocate to any area it wished to. (Wait, doesn't that sound like a bailout to you?)

The vote in the House or Reps was 370 to 58 to approve a broad spending bill that includes $7.5 billion to start the loan program.  The Senate is expected to agree to the budget this week, and the President is expected to sign it.

And why do they need this money?  It's to retool plants to build fuel-efficient vehicles and components.  The car makers are crying because car sales are down, and dealers are closing.  So, I guess I'm confused (insert sarcasm) of if people can't afford a new car right now, because of the economy, then what does that have to do with retooling to build fuel-efficient vehicles?  Is that really going to get people to change their mind to purchase something they can't afford?  Wait, isn't that what got us here in the first place?

But GMAC and banks seemed to have learned some lesson.  They have tightened credit for car buyers, making auto loans harder to get.

So, people aren't buying new vehicles, because they can't afford it.  Auto makers seem to think that by retooling to make changes for higher gas mileage will increase sales again, when in reality, its more about the new EPA laws that are just about to take effect in a few years.  And the retooling to make those engines is quite a major expense.  In fact to the point where Catapillar, the number #1 engine maker of semi-trucks, stopped making engines for semi-trucks because they can't afford the technology, and see no profit in it.  Thank's California.....

And, half of all vehicles sold in the United States by 2000 were either SUVs or trucks.  Both models of vehicles were exempt from the automobile emission standard and were not counted as part of the calculation of fleet fuel efficiency mandated by federal law.  During the early 2000s, moves by environmentally conscious Congress, to increase the fuel efficiency of the entire vehicle fleet were opposed by Detroit.

Subjecting SUVs and trucks used as passenger vehicles to air pollution/fuel efficiency standards mandated for passenger vehicles would have hurt the market, and reduced the American auto industry's profits.  It also would likely make Japanese vehicles more attractive, as the Japanese auto makers were able to produce fuel-efficient vehicles.  They currently have cornered the market in electric hybrid vehicles as Detroit, abandoned it.

But Ford is planning on showing new hybrid models in Paris next month, including its replacement for the Ka minicar, as well as the Focus RS, Ford's fastest European-built model, and a fuel-efficient Fiesta..... with plans on rolling out in 2010.  Wait, I thought they needed the money to develop more fuel efficient vehicles.... but they already have them?

The Ford Fiesta ECOnetic gets 65 mpg and goes on sale in November.  But if you live in the United States, you can't have one.  Ford is only planning on selling them in Europe.  "We know it's an awesome vehicle," says Ford America President Mark Fields.  "But there are business reason why we can't sell it in the U.S."  The main reason is the car runs on diesel.  Ford feels that since diesel is now more expensive than unleaded, there won't be a market for it here in the U.S.  "Americans see hybrids as the darling," says Global Insight auto analyst Philip Gott, "and diesel as old-tech."  And Ford feels the price of the car, $25,7000 is too high for the American market.  But it seems affordable to the European market!  But Ford doesn't feel it could charge enough to make money on an imported ECOnetic, since the engines are built in Britain.  HOWEVER, Ford plans on making a gas-powered version of the Fiesta in Mexico for the U.S. (Wait, Mexico? Ummm... hello?  Unemployment in the US!.. Freakin' cheapskates and NAFTA.)  But they still don't plan on building the diesel engines there either.

And Chevrolet is planning on showing a new car called the "Volt" at the Paris show. The Volt is a hybrid and it goes on sale in the United States in 2010.  For the first 40 miles, it runs entirely on electric.   Hmm.. I thought they needed the money too, for retooling to develop more fuel efficient vehicles..................

And Chrysler plans on producing three electric models.  The Chrysler EV, Dodge EV and Jeep EV.  They too will be available in 2010.  Am I seeing a pattern here?

Oh BTW, GM had an electric car in 1999 called the EV1, but not too many heard about them due to limited production.  It went up to 160 miles and 80 mph, and provided 0 emissions (passing CARB requirements, emissions in CA).  They were only leased out under a "no purchase" clause.   The program was canceled in 2003 despite unfulfilled waiting lists and positive feedback from the lessees.  GM stated that it could not sell enough of the cars to make the EV1 profitable.

But yet, credit is hard to come by.  Have I missed something again?  Why do I feel like I'm running in circles again............  or am I just a mouse on a wheel?

Oh and Warren Buffett, just today, out of the blue, has decided to invest in the electric car market.  He is paying $230 million for a 10% stake in BYD, China's largest maker of rechargeable batteries.  BYD plans to start selling its first all-electric car in China next year and to start selling gasoline-electric hybrids in the U.S. and Europe by 2010..... so Buffet has decided to invest his money in a company from China, and none of the Big Three in the United States....... is that a clue?

Let's just hope that whatever the Big Three decided to do, it comes out better than the Reva.  The Reva is an all electric car  from India, that was among the world's first electric vehicles sold commercially.  Its priced between $9,000 and $11,000 making it extremely affordable for a new vehicle.  Size wise, its only eight-feet long, and weighs about 1650 lbs. "Top speed is approximately 50 mph, which takes some time to achieve.  Range is 49 miles.  A full charge takes eight hours." that a carrot in front of me while I pull this cart?

So, 8 hours to charge, with a top speed of 50 mph, and a running time of an hour?  So are you in Boston, in the middle of winter, on the freeway in rush hour, rushing to get one?  I think I need to buy a horse.......................... and use the carrot from above to feed him.

Oh, BTW, there's 9 other cars that won't be coming to the US either........................  And here's a list of "The 11 Least Fuel Efficient Hybrids" ranging from 19 mpg to 32 mph.  Wanna see the stylish Electric cars?

And one more thing.  If you like the Chrysler PT Cruiser, Pacifica, Crossfire, or Dodge Magnum, you better get em now.  Chrysler executives have decided to kill the entire PT Cruiser line after the 2009 model year.  Chrysler, in announcing the expanded restructuring this month (cutting it's North American hourly work force almost in half by 2010), said that it was dropping the PT Cruiser convertible, Chrysler Pacifica, Chrysler Crossfire and Dodge Magnum.  Also in the works, a new plan that would eliminate all passenger vehicles from the Dodge and Jeep brands. 

Additional Sources:

Detroit Free Press, "Auto industry loans may take up to 18 months"
Los Angeles Times, "House passes $25-billion loan package for auto industry"
ABC NEWS, "Big Three to Get Check From Government"
Green Energy News, "Electric Drive To Revive Detroit?"
The Consumerist, "The 11 Least Fuel Efficient Hybrids"

Before anyone asks, the picture is of a "Venture Ventureone" a two-passenger, three-wheeled, 100-mpg plug-in series hybrid from Venture Vehicles in Los Angeles.  It runs $18K to $23K.

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