The Treasury Department has already thrown a lifejacket to the nation’s banks, offering to buy as much as $250 billion of their preferred stock. There’s been talk of including insurance companies in the Troubled Assets Relief Program (TARP), too. Now auto financiers may be next in line for rescue. Check out this post on the Wall Street Journal’s site.
Last month, the government approved $25 billion of loan guarantees for troubled automakers. But these new funds would be earmarked for the captives.
From the article: “It’s possible that some of those financing arms could be a part of the rescue package, the TARP,” said White House spokeswoman Dana Perino. “That’s one of the reasons Treasury has been in contact with them.”
To put things in perspective, the article continues: “Without a merger and possibly an assist from the federal government, two of Detroit’s Big Three auto makers could run out of cash within a year.”
I think it is a great idea to get liquidity in the hands of the captive finance sources. Let’s remember, this is not a handout, but a hand up! We need a properly functioning captive finance business for the auto industry to survive. There is going to be a lot of shake-out through consolidation, but let’s keep access to capital so the strong can survive.
If you target these funds at the finance arms, they will employ it to put people in vehicles and it will happen rather quickly. I completely agree that it should not be used to buy Cerubus out of their investment and it should have certain conditions.