US set to give auto makers lifeline – but no bailout
WASHINGTON / DETROIT, March 25 (Reuters) – The $ 2 trillion economic bailout presented to the US Senate on Wednesday would send the federal government to rescue the auto industry for the second time in a dozen years.
Automakers fear being identified as seeking a new government bailout so soon after government-funded auto restructurings in 2009. Detroit did not ask for industry-specific help and instead did argue that the entire economy needs urgent access to liquidity.
Republican Senator Pat Toomey said on Wednesday that the deal provided for $ 454 billion to provide loans or loan guarantees to businesses in all sectors, as well as to states.
He said the money was more likely to be used to raise even more funds in the form of Federal Reserve loans. Toomey told reporters at a conference that the Treasury would then be able to grant loans, buy loans or buy corporate debt, which could be a major boost for builders. automobiles. Toomey called the bill “the biggest government intervention in the economy in the history of the world.”
Industry officials, particularly at General Motors Co, were keen to avoid the emergence of a federal bailout. Sales suffered and the No. 1 US automaker was dubbed “Government Motors” after its $ 50 billion bailout in 2009, when Congress also approved a $ 3 billion “Cash for Clunkers” program. to stimulate demand.
The United Auto Workers union and the Detroit Three automakers recently discussed sending a letter to Capitol Hill explaining why the industry needed a source of cash, but GM ultimately refused to sign the letter and it was not sent, people familiar with the matter said.
The final package did not contain any benefits aimed specifically at car manufacturers. In contrast, US airlines are expected to receive $ 25 billion for salary costs in the form of cash subsidies that do not need to be repaid.
John Bozzella, who heads an auto trade group that represents US and foreign automakers, said last week that “at this point we are not focusing on sector specific measures, but on broader economic measures.” .
Yet automakers are not ruling out asking for additional help if auto sales or production remain frozen.
But automakers and parts makers should benefit from other provisions, including a 50% employee retention tax credit and the suspension of the employer’s share of payroll taxes for two years.
GM and its employees paid more than $ 3.15 billion in state, local, and payroll taxes in the United States in 2018.
Credit rating agencies have identified the automotive sector as the industry in greatest need of assistance. A group representing major US and foreign automakers sent a letter to US lawmakers along with other industry groups calling for loans and loan guarantees for businesses of all sizes.
GM, Ford Motor Co and Fiat Chrysler Automobiles NV (FCA) have halted production of vehicles in North America until at least March 30, and those briefed on the matter said they plan to extend it until at least March 30. April.
Auto makers will get tax breaks, but government loans are the biggest help, sources say. Help will also be available to car dealers and thousands of small suppliers. Funds for U.S. consumers could also boost new car sales again once home orders increase.
Auto makers in Detroit are in much better financial health than they were before the 2008-09 crisis. The balance sheets of the three companies are healthier, and GM and Ford decided this month to strengthen their cash reserves by drawing a combined total of more than $ 30 billion on lines of credit.
The global auto industry is bracing for a drop in global sales of more than 12% from 2019, worse than the 8% drop from two-year peak to trough during the 2008-09 global recession, the global recession predicted on Wednesday. IHS Markit research firm.
The Senate package could help the heavily stressed small suppliers that automakers rely on for parts.
“I work with four mid-market vendors – $ 150 million in revenue to around $ 400 million in revenue – and most of these companies are not very well capitalized,” said Steve Wybo, Head of Automotive Group Practice for Restructuring Consulting Firm Conway MacKenzie Reuters.
RoMan Manufacturing Inc is a family-owned manufacturer of transformers and glass molding equipment for automotive manufacturers and other industries based in Grand Rapid, Michigan. Co-owner Bob Roth said his balance sheet was “rock solid” but he was cutting spending as he sees other manufacturers pleading for bank loan relief.
Normally, he said, “we pay all bills on the 10th and 25th, now we go to one payment cycle per month.” He told family members who own the business “we won’t be paying a quarterly dividend for a while.” (Reporting by David Shepardson in Washington and Ben Klayman in Detroit; Editing by David Gregorio)