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Car Companies Cop Congressional Loans

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By William Reed


These days, 11-figure expenditures barely attract notice.  While Congress was grappling with the 12-figure $700 bailout plan for the financial industry, the powerful Michigan delegation got House approval for $25 billion in loans for the troubled U.S. auto industry.

Lawmakers that pushed for the legislation hailed it as key to saving thousands of jobs in the state.  Detroit Rep. Carolyn Cheeks Kilpatrick, chair of the 43-member Congressional Black Caucus, played a major role in passage of the legislation. What many will call "corporate welfare" enables General Motors, Ford and Chrysler to get at least $5 billion each.  This allows them to borrow money at interest rates as low as 4 percent.  Over several years, the automakers could save hundreds of millions in financing costs.  The car companies will have five years before they start repaying the loans.

Black Americans hold 13 percent of auto industry jobs and have significant interest in the Detroit 3's survival.  With approval of the low-interest loans, the U.S. auto industry won help it urgently needs to rework its vehicles.  The plan was in the Congressional queue months before the Wall Street bailout came to the fore.  But the loans are one of several government aids - from research funds to consumer tax credits - automakers will increasingly rely on to build technology they need to survive.  The automakers first sought an installment of loans totaling about $6 billion, but the nationwide credit crunch crimped their ability to borrow.  The $25 billion is just a down payment, automakers will seek another $25 billion next year to retool old assembly lines and develop advanced, fuel-efficient technology.

The idea behind the loans is to buy time while the Detroit 3 revamp their lineups, develop new hybrids and other fuel-sippers, and convert old SUV plants into factories turning out cars able to compete with comparable Japanese models.  Consumers reeling from $4 gas have fled the big trucks and SUVs the manufacturers milked for two decades, and Detroit's smaller cars tend to rate poorly compared with competitors.  The domestics' U.S. market share is now about 48 percent, a staggering fall of nearly 20 points since the start of the decade.  GM and Ford are expected to produce about 1.3 million fewer cars this year than in 2007.  Even cheap loans will do little to help erase years of red ink and it's going to take some time to make a dent in their debt load.

Blacks have a stake in the trillion-dollar automotive industry, and many jobs are at jeopardy if the Detroit 3 stay in the doldrums.  But, as taxpayers it's time to consider what "a billion" actually means:  Counting non-stop, one number a second, it would take almost 32 years to count to 1 billion.  A billion here and a billion there and soon it adds up to real money that has to be repaid.  But the reality is that automakers face a life-threatening crisis if the U.S. car market doesn't rebound.  General Motors reported a second-quarter loss of $15.5 billion and Ford Motor reported an $8.7 billion loss.  GM and Ford could start to run out of cash by the second half of 2009.  Chrysler's sales are down even more than Ford and GM.

Vehicle purchases are the second-largest purchase most Black families make.  Import and domestic dealers, in total, have annual new car and truck sales of about $480 billion.  Annual new and used car and truck sales in the US amount to a near-trillion dollar business.  Minorities accounted for 22 percent of the US new-car market, but just 5 percent of dealerships.

African Americans should hope the loan infusion doesn't just produce more of the same for them in the automotive marketplace.  Due to discrimination, Black buyers have to spend more than other groups at the time of their purchase of vehicles.  On top of their taxpayer burden to the industry, Blacks shouldn't have to pay higher loans rates than whites on 60 to 72 month contracts after they've paid an average price of $30,000 for a new car or truck.

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