The Stimulus... and Billions More

On Tuesday afternoon, President Barack Obama signed his first bill into law. And it was a hefty, too! The Stimulus Package became the law of the land with the stroke of his pen and over $787 billion is now ready to stimulate our lagging economy back to life.

There is a little problem, though, how will we know that the stimulus is working?

Mr. Obama didn't go as far to guarantee a win with this thing, as I'm sure he knows that there'll probably be a request for more stimulus money in the coming months. He said, "Today does not mark the end of our economic troubles. But it does mark the beginning of the end - the beginning of what we need to do to create jobs for Americans scrambling in the wake of layoffs; to provide relief for families worried they won't be able to pay next month's bills; and to set our economy on a firmer foundation."

The signing ceremony was held at the Denver Museum of Nature and Science in Colorado.

~ ~ ~

The request for more billions didn't take long. General Motors Corp (GM) and Chrysler LLC requested nearly $22 billion in additional U.S. government loans and said they had reached tentative deals with the United Auto Workers union to reduce labour costs. It is estimated that they will trim close to 50,000 jobs... in exchange for the money. They claim that they need the funds to stave off bankruptcy.

The two automakers, which have so far received $17.4 billion in loans from the U.S. Treasury, also detailed plans to cut jobs and idle plants as part of sweeping restructuring plans submitted under the terms of their federal bailout.

GM is seeking an additional $16.6 billion from the U.S. Treasury -- for a total of up to $30 billion in loans -- and said it would run out of cash as soon as March without new federal funding. In addition, GM said it expected to be able to borrow up to $6 billion from foreign governments and nearly $8 billion from the U.S. Department of Energy. It warned that without $1.5 billion from asset sales in 2009 it would need even more cash.

GM also accelerated its job cut plans, saying that it would eliminate 47,000 jobs over the course of 2009. The company said it would cut about 20,000 jobs in the United States, or about 22% of its remaining U.S. staff. Previously, GM called for U.S. job cuts of between 20,000 to 30,000 workers, but it had stretched out those reductions through 2012. The company said it plans to close five additional U.S. plants by 2012 --in addition to the 12 planned closings announced in December.

GM added it plans to phase out the Saturn brand by the middle of 2011 if it is unable to sell or spin-off the brand. GM is also looking to sell its Saab brand, and will look for help from the Swedish government to support Saab until a buyer is found. There will be fewer Pontiac models, with a plan to reduce GM to four brands: Chevrolet, Cadillac, Buick, and GMC (trucks).

Chrysler said it plans to cut about 3,000 jobs, or 6% of its workforce, and reduce capacity by another 100,000 vehicles this year as it tries to adjust to reduced demand. It also said it has won the concessions from the United Auto Workers union and its creditors that were demanded under terms of the loan from the Treasury Department.

~ ~ ~

Obama's pen could not keep world markets from continuing their downward spiral... this economic crisis is global and it ain't getting better: Japan is suffering its worst downturn in 35 years, England has had its worst decline in 30 years, Germany's decline is the worst in 20 years! And the US job market is the worst in over 20 years. The Dow Jones industrial average declined nearly 300 points on Tuesday to finish close to its lowest level of the financial crisis. Even China is feeling the pinch with unemployment growing over there.

Japan's economy, the world's second-biggest, after only the United States, shrank at an annual rate of 12.7 percent during the last three months of 2008 -- the biggest contraction since the oil crisis of the mid-1970s. The British economy, damaged by the credit crisis, will contract at 3.3 percent, almost twice as much as predicted three months ago, according to the country's biggest business lobbying organization. Those two pieces of data, released Monday, came on the heels of a report Friday showing that the German economy, Europe's largest, shrank by 2.1 percent, the steepest drop since the country's reunification in 1990. Some economists had argued that countries like Japan and Germany were better equipped to weather the downturn. Germany has little consumer debt, and Japan's banks are in better shape after the banking crisis of the 1990s. But their economies rely heavily on exports, and global demand for items such as Japanese and German cars has evaporated.

And emerging markets, the world's fastest-growing economies, whose demand for goods and services is considered key to a global recovery, showed signs of intensifying weakness. Russia's state-owned news agency said Tuesday that lower commodity prices and the financial crisis are expected to cause the economy to shrink by more than 2 percent this year. In Brazil, where commodity exports have fallen sharply, retail sales in December fell for the third straight month, marking the longest period of declines in six years. Taiwan said exports plunged by record levels. In Mexico, the government was forced to intervene in the foreign exchange market after the peso reached an all-time low against the dollar. In China, slumping demand for exports has trimmed the growth of its powerful economy to nearly half its 13 percent pace in 2007.

Good news on the economic front is nowhere to be found!

~ ~ ~

plez sez: i held out such hope that this stimulus package would actually make a difference, but something tells me that the global economy is so eff'd up, that $787 billion will be like "spit in the wind!" i'm not sure the US mint will be able to print enough $100's to keep this ship afloat. consumer confidence is so low, orders for goods are at record lows, global markets continue to fall... i don't know if the US economy (which has been mortgaged to china and saudi arabia) has enough gas in the tank to save the rest of the world.

i said it before... i think we're going to have to witness one of the automaker's demise before anything substantial will change. i am not sure what propping them up with cash while they are slashing payroll will do... when NO ONE is buying the product!

plezWorld believes the answer lies in the mortgage crisis and the credit crunch. maybe things would loosen up a bit if ALL of those risky loans heading to foreclosure were renegotiated at bargain basement rates, and then if credit card companies would be compensated for working to drastically lower (or even eliminate) the interest rate or balances on outstanding accounts that are headed toward default. to my way of thinking, both of those acts would serve as a necessary catalyst to get consumers back into the malls, realtor offices, and auto showrooms.

and since our economy is such a leading market for the global economy, US companies should be incented to begin bringing the jobs that have been offshored to china and india BACK to the US. put americans back to work... and the rest of the world will soon follow. put money and credit back in the pockets of americans... and we will start buying the world's goods.

~ ~ Citations ~ ~

Read the CNN Money article about measuring the success of Obama's stimulus package.

Read the AJC.com article about Obama signing the stimulus plan into law.

Read the Washington Post article about the downturn in global economies.

Read the CNN Money article about US automakers wanting more bailout money.

Read the Reuters article about US automakers needing additional bailout money.

Read the New York Times article about how GM plans to trim brands from their line-up.

Read the New York Times article about the big loss of white collar jobs in Detroit.

~ ~ ~ ~ ~ ~

Bush Announces $17.4B Auto Bailout

On Friday morning, President George W. Bush - yeah, the lame duck - waddled into the Roosevelt Room of the White House to announce his plans for an emergency bailout of the U.S. automakers, namely General Motors and Chrysler.

Ford Motor Company is a better financial position, so they were not included in this plan.

He intimated that under normal circumstances, he would just let the automakers file for bankruptcy, but in justification of his actions, Bush said:

These are not ordinary circumstances. In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action. The terms and conditions of the financing provided by the Treasury Department will facilitate restructuring of our domestic auto industry, prevent disorderly bankruptcies during a time of economic difficulty, and protect the taxpayer by ensuring that only financially viable firms receive financing. Additional loans may be available in February based on the availability of TARP funds.

Details of the plan are as follows:

• General Motors and Chrysler will receive loans from the federal government in the amount of $13.4 billion ($9.4 billion to GM and $4 billion to Chrysler) this month
  
  
• Financing will be drawn from the $700 billion Troubled Asset Relief Program (TARP) that was organized for the Wall Street bailout
  
  
• The loans are designed to stabilize the two automakers through March 2009, at which time they must show they are financially viable; If the firms have not attained viability by March 31, 2009, the loan will be called and all funds returned to the Treasury
  
  
• Conditions on the loans requires the companies to quickly reduce their debt by two-thirds, mostly through debt-for-equity swaps, and to reach an agreement with the United Auto Workers union to cut wages and benefits so they are competitive with those of employees of foreign-based automakers working in the United States
  
  
• Other conditions on the loans include placing limits on executive compensation and perks such as corporate jets, and requiring the automakers to adhere to fuel efficiency and emission standards and open books to government scrutiny
  
  
• An additional $4 billion will be made available in February, based on the release of funds from TARP

Bush's announcement comes one week after Senate Republicans blocked legislation to aid the automakers that had been negotiated by the White House and Congressional Democrats, and the loan package announced by the president includes roughly the identical requirements in that bill, which had been approved by the House.

Because the bailout legislation failed in Congress, senior administration officials said that the loan package would essentially take the form of a contract between the government and the automakers. Officials said they expected those contract agreements would be signed by the end of the day.

~ ~ ~

A New York Times article about the bailout points out, under the plan, Mr. Bush essentially handed off to President-elect Barack Obama what will become one of the first, most difficult calls of his presidency: a political and economic judgment about whether G.M. and Chrysler are financially viable.

Mr. Obama and his economic team will have to make a convincing, public case that the wage cuts, plant closings and creditor agreements so change the landscape of the industry that the carmakers can turn profitable in short order.

But Mr. Obama will be under tremendous political pressure as well, because if his new team concludes that the automakers have not struck the right deals, it would mean a move to bankruptcy court, and likely widespread layoffs that would ripple far beyond the companies themselves.

Mr. Obama was elected partly with the enthusiastic support of the unions, who liked his talk of protecting jobs by renegotiating trade agreements. Now, in his first months, he will be asking them to give back gains they have negotiated over decades.

~ ~ ~

plez sez: as expected, bush squeezed the last two drops of political capital from his faded political career to provide a temporary bailout to the us automakers - his post-presidential revisionist spin team will be at the ready to re-write history to show that "the us auto industry failed under Obama's watch!"

gm and chrysler will limp into the new year with a big box of money from uncle george, with both of their plants idle until late january or mid february. and i'm not convinced that chrysler will ever open its plants under the chrysler brand in 2009.

this loan comes with few strings attached (oh, they have to sell the corporate jet that they can't afford to put back in the air. ooooh, whoopie!) and good luck with getting the UAW to offer much in the area of wage concessions, after they've fought tooth-and-nail to get the compensation and nice pension plans their workers now enjoy.

as the new york times article so deftly stated, this stinking automakers bailout turd will be sitting on BARACK OBAMA's desk when he takes over the oval office on january 20th, since george bush has essentially washed his hands of this matter by giving the automakers enough money to keep them afloat until the inauguration of Obama. bush can now go back to packing boxes for his and laura's move to dallas in a few weeks.

~ ~ ~

the federal government can't print enough money to keep the big three afloat until the end of this recession. these companies can restructure all they want, there ain't any credit available for few people who want to buy their cars! the reason for the plant shutdowns is that the inventory on hand isn't selling, so there's no need to make more cars.

okay, a show of hands: does anyone seeing this scenario of having few buyers for the glut of cars changing in the next four, eight, or twelve weeks?

...neither does plezWorld!

one of these companies - more than likely chrysler since it is so close to brink - is going to fail.

to my way of thinking, it's better to let them fail now rather than giving away untold billions of dollars that will never be recouped. this is corporate welfare (giving away money with no foreseeable way to retrieve the assets in the future) of the highest magnitude.

~ ~ Citations ~ ~

Read the New York Times article about Bush's bailout for the auto industry.

Read the Atlanta Journal-Constitution article about the auto bailout.

Read the CNN.com article about Bush's automaker bailout plan.

~ ~ ~ ~ ~ ~

Chrysler - One Down. Two To Go.

Is this the harbinger of the Big Two?

Chrysler announced on Wednesday that it will close all 30 of its auto manufacturing plants for at least a month starting at the end of shifts on Friday as it tries to conserve cash and avoid bankruptcy amid plunging demand for its vehicles.

The third-largest U.S. automaker said that it is taking the action to bring its inventories more into line with reduced U.S. demand for new cars and trucks. It blamed its current difficulties largely on customers' inability to obtain financing to purchase new vehicles and said tight credit markets were discouraging would-be buyers.

Chrysler said manufacturing operations would resume at the earliest on Jan. 19. Two factories in Toledo, Ohio, that make the Jeep Liberty, Jeep Wrangler and Dodge Nitro will be closed until Jan. 26. A minivan plant in Canada and a plant in Detroit that makes the Dodge Viper will remain shut until Feb. 2.

A total of 46,000 employees will be affected. The workers will be paid during the time off through a combination of state unemployment benefits and Chrysler contributions, but they will not receive the full amount of their working pay.

~ ~ ~

Chrysler (in fact, most automakers) normally shuts down operations between Dec. 24 and Jan. 5. This closure would add roughly two weeks to that shutdown.

On the heels of the Chrysler shutdown announcement, Ford Motor Company said that it would extend the holiday shutdown at most of its plants to a third week.

~ ~ ~

Auto sales have been bludgeoned by tight credit and the struggling economy. Overall auto sales in the United States were down 37% last month compared with November 2007. Chrysler's situation was especially bad: its sales dropped a whopping 47%.

Chrysler's financing arm, Chrysler Financial, has tightened lending terms for buyers and earlier this year, it announced it would no longer offer leases.

Chrysler said the decision to add more down time was largely based upon reports from its dealers that they have many willing buyers, but that they are unable to close deals because of a lack of financing.

“People have to get credit to purchase vehicles,” Chrysler spokesperson Shawn Morgan said. “We have dealers telling us that they have customers who want to buy, but they can’t get financing. When they can get credit. Sales will improve... [but] we shouldn’t be producing vehicles without orders.”

Chrysler dealers report a loss of about 20% to 25% of their volume because of the credit situation.

~ ~ ~

plez sez: is this the harbinger of the Big Two?!?

no less than one week ago in this space, plezWorld predicted the demise of one of the big three us automakers. in light of the recession and continued credit crunch, will chrysler open any of its plants in january? in february? in march?

i find no joy in the news. this slowdown will undoubtedly affect over 100,000 workers (automakers, dealers, and suppliers) over the next month. i grew up in shouting distance of a large GM plant in north tarrytown, new york, so i know what an economic engine an automaker has in the community where it operates.

i'm afraid any bailout at this point will do little to keep chrysler afloat. the recession is cutting deep and there is no reason to believe that in one month that the credit crunch or job loss numbers will be better to allow people to once again roam the glistening dealerships of chrysler autos. seven or eight billion dollars will allow them to make payroll, make insurance payments, bolster the pension, purchase raw materials, and make more autos that NO ONE will be able to purchase in february or march.

with those facts in mind, i can foresee chrysler continually pushing back the factory startup date until they finally have to admit to themselves and the public that those plants will remain idle... and chrysler will be a us automaker no more.

this has to be worst news about the us economy since the word of the wall street collapse in september. on monday, we will talk of chrysler in the past tense. and our nomenclature will change, as we now have the Big Two.

~ ~ Citations ~ ~

Read the Detroit Free Press article about Chrysler monthlong shutdown.

Read the CNNMoney.com article about Chrysler factory shutdown.

Read the New York Times article about monthlong furlough for Chrysler workers.

Read the Washington Post article about Chrysler shutdown.

~ ~ ~ ~ ~ ~