Watching the land grab for TARP money becomes more entertaining every day.
Now Hertz (HTZ) and Avis (CAR) want money to buy Ford (F) and GM (GM) cars.
The plan makes a perverse sort of sense.
Hertz and Avis don’t have access to the capital that they need to keep their fleets fresh. Their customer bases are dropping as the economy cuts into consumer and business rentals.
Ford, GM, and Chrysler could use the revenue from sales. According to The Wall Street Journal, "Avis Budget Group Inc., Hertz Global Holdings Inc. and other rental-car companies are lobbying Congress to allow them to use Troubled Asset Relief Program funds to finance new auto purchases."
The trouble with the proposed program is simple. US car companies have cut back on fleet sales, which include the rental companies, because these sales have low margins. If the government improves the ability of the rental firm’s to buy more inventory from Detroit, it will probably be a cut rate prices.
So, the Treasury Secretary can make sure the rental companies survive by funding them to pay below market prices for cars. Then, it can give The Big Three more capital to make up for the difference.
Douglas A. McIntyre
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