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Automaker Bailout Hits Major Pothole

Posted Nov 19, 2008 11:29am EST by Aaron Task in Investing, Recession, Autos
Related: GM, F, ^DJI, ^GSPC

Supporters of a bailout of U.S. automakers got a rude awakening in Congress Tuesday, as the odds of "bridge loan" or outright bailout during the lame-duck session fell precipitously.

In separate hearings, Treasury Secretary Hank Paulson reiterated his opposition to using TARP funds to help the "Big Three," whose executives received some rough treatment from senators.

"I don't think they have immediate plans to change their model, which is a model of failure," said ranking Republican Senator Richard Shelby of Alabama. "I believe their best option would be some type of Chapter 11 bankruptcy."

The executives are back on the Hill today, but support for the "let 'em eat cake" or, at least, file  for bankruptcy option seems to be growing; if airlines can operate under Chapter 11, why can't automakers? Or so the thinking goes.

Simultaneously, the scare tactics being used by automakers about the implications of a failure — "the societal costs would be catastrophic," said GM's Rick Wagoner — seem to falling on deaf and skeptical ears.

In addition to a view the Big Three are in a mess largely of their own making, it seems Congress (and the American people) learned the lesson of falling prey to fear tactics after Paulson and Bernanke used them during the original debate over the $700 billion TARP.

Once bitten, twice shy.

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