Autos Next In Government Handouts? (GM, F)

If you look at the auto stocks today, you might deduce that they are next in line for the government corporate bread lines and farm camp jobs.

  Ford Motor Co. (NYSE: F) is only up about 4% at $5.49, but shares of rival General Motors Corp. (NYSE: GM) rose 29% to $12.81 late this morning.  It seems that Wall Street might be buying into the notion that if Uncle Sam is willing to take over the burden of the mistakes by many large financial institutions to avoid systemic risk, then perhaps making some loan guarantees to the Big 3 might not be as far-fetched as some think.

Earlier this month there were report that the auto sectorwas trying to get loan guarantees.  Huffington Post noted a $50 billionprogram from auto allies in Congress to modernize plants and help automakers buildmore fuel efficient vehicles.  24/7 Wall St. has its own take on this this, butthere are limits to corporate assistance. You can make the case that any sector needs help.  S&P recently slammed GM’s stock with a sell rating and $4.00target.  Their downgrade may have actually marked the bottom of thestock.

There are 100,000 jobs in the U.S. at Chrysler (its website figure),GM employs about 266,000 workers globally (its website figure), and Fordemploys about 229,000 workers globally (its website figure).  If the auto industry can make even a fraction ofthe argument that the financial industry has been able to make, thenmaybe the government will listen. And what about the issue of all the delinquent loans that the automakers face?

There will be consequences if the government starts bailing out or stabilizing every sector.  The airlines have been bailed out before, and farming in the U.S. might not exist without subsidies or assistance programs. But where does it stop?  Does the government bail out the truckers and the newspaper companies?  Uncle Sam has let other industries rot on the vine like mining and steel production. Some assistance is one thing, but itis pretty evident where we stand on the total bailout picture.

Jon C. Ogg
September 19, 2008