How Will Wall Street’s Problems Impact Motor City?

The recent meltdown of the mortgage securities industry has sent a shockwave throughout the world. Lehman Brothers has gone bankrupt, AIG was bailed out by the federal government, and quite suddenly Americans are being told that they are assuming hundreds of billions of dollars of corporate debt.

Billions Of Dollars Being Packaged

Before the meltdown became apparent, America’s automotive industry has been campaigning for government assistance in the form of low interest rate federally backed loans. General Motors, Ford, Chrysler and several auto suppliers have been asking Congress to push through a $25-50 billion aid package, monies which would be used to help these companies retool their fleets to produce smaller, lighter, and much more fuel efficient vehicles.

Prior to the Wall Street meltdown, consensus for helping Motor City manufacturers was favorable, with Congress and both major party presidential candidates agreeing that some sort of assistance was necessary. However, with hundreds of billions of dollars being earmarked to bail out investment banking firms, will Congress decide to loan money to Detroit?

Why The Loan Package Makes Sense

Here are some reasons why I think a loan package to the auto industry still makes sense:

The monies being lent are just that — a loan. Unlike the Wall Street bailout, the automakers must repay what they borrowed and with interest. When the federal government offered aid to Chrysler in the early 1980s, Chrysler repaid their loans back early and the government made $300 million on the deal.

The auto industry needs help. Blame for some of the current woes facing the auto industry should be placed squarely on the shoulders of the manufacturers, but not completely. US dependency on foreign fuel is a national problem, one that has exposed the country to the vagaries of the marketplace, something that is placing an undue burden on our economy.

Federal regulations are tough. The US government wants automakers to produce a much more fuel efficient fleet of vehicles, but isn’t helping these companies make that move. Requiring high fuel economy is one thing, supporting this effort by tax abatements or a loan can help each company meet these mandates.

Our Valuable Automotive Industry

We can’t afford to lose the industry. GM, Ford and Chrysler are in precarious shape, with each company laying off tens of thousands of workers. Suppliers are being hit hard too, making high unemployment a very real possibility across manufacturing dependent states.

No Money? Big Problem!

I’m probably one of the last guys who would recommend federal intervention in the affairs of corporations, particularly when it comes to financial matters. But, these are unusual times and the future of an industry that is critically important to the US economy is on the line. If loans are offered, capable oversight from the federal government will be necessary, otherwise the loan monies could soon be misused or quickly turned into a grant.

Americans do not want to assume tons of debt, but we don’t want to see jobs flow overseas at an alarming rate. Helping out the auto industry is a small price to pay compared to the Wall Street bailout, not a fun proposition, but a necessary one at that.