Next Stop on the Bailout Express: Detroit

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No one can possibly doubt that General Motors is headed toward the abyss.

• Since 2004, GM has lost more than $70 billion, including $27 billion so far this year.
• In October, GM’s sales were 45 percent below last year’s total. On a per capita basis, that figure is the lowest since World War II.
• On October 1, the company had about $16 billion in cash, and needs a minimum of $11 to $14 billion to operate. Last quarter, it used almost $7 billion.
• GM’s long-term debt totals $33 billion. If the company’s financial condition continues to deteriorate, lenders can demand repayment of $6 billion at the end of the year.
• The stock has fallen 85 percent this year. The whole company could be bought for roughly $3 billion—if anyone wanted it.

Ford and Chrysler are on the same slippery slope. Without government intervention, the only question is which company declares bankruptcy first.
And there is no possibility that this will wait for Barack Obama’s inauguration on January 20.

The Treasury has already rejected the most likely short-term solution: give the industry access to $50 billion of the $700 billion bailout.

Since Paulson has reversed himself on every other aspect of the crisis, he will probably change his mind on this one, too, especially since a GM failure would put lots of jobs at even greater risk, deliver a severe blow to what’s left of consumer confidence and cause yet more financial losses. (Among other potential impacts, speculators have written $32 billion worth of credit default swaps insuring against bankruptcy, with a net exposure of $4.5 billion.) After all, would you buy a car from a bankrupt company?

Terry Tamminen, author of Lives Per Gallon: The True Cost of Oil Addiction, doesn’t agree with GM Chairman Rick Wagoner that soaring gas prices early this year and the current credit squeeze have largely caused the industry’s problems. He points out that Toyota and Honda have been facing the same conditions, but aren’t at death’s door.

However, Tamminen believes that a big bailout check with no conditions—of the kind already given to many of the banks—would be a mistake. He wants new management and new strategies. Most of all, he wants the American auto companies to respond to what consumers need and want: “fuel efficient cars that pollute less.”

That doesn’t seem like asking too much.

Watch FLYP’s interview with Terry Tamminen.