As the debate rages over a federal loans package (aka ‘bail-out’) for the Detroit Three, analysts at Edmunds have questioned the motives of some lawmakers who have been vocal in their opposition to federal assistance for Detroit.
Edmunds.com notes that some of the most vocal opponents of the proposal may be motivated by factors that fall outside of the spotlight.
For example, a number of senators oppose supporting the automakers with tax dollars, but many of those senators represent states that have already used millions of tax dollars to lure foreign automakers to build factories in their states and employ their constituents.
As Edmunds’ AutoObserver.com editor Michelle Krebs pointed out, “Alabama lured automakers to the state by dangling millions and millions of [dollars in] financial incentives in front of them in the form of infrastructure construction and improvement, job training for workers and tax breaks for the auto companies. And every foreign automaker building vehicles in Alabama is making SUVs there.”
Indiana, Kentucky, Mississippi, South Carolina, Tennessee and Texas are also home to foreign automaker plants.
Other legislators who are opposed to the loan represent states where domestic automakers have closed plants and left constituents unemployed. New Jersey is one example.
“Is it really a good time to employ politics as usual, when so much is at stake?” asked Edmunds.com chief executive officer Jeremy Anwyl.
Financial ratings services are also generally suggesting the loan would be a bad investment of taxpayer money, but those are the same ratings agencies whose judgment have helped to create the country’s current financial crisis.
Bankruptcy lawyers are also opposed to loaning the automakers money, fully realizing that the lack of support could lead to bankruptcy for the automakers, their suppliers and related businesses in a domino effect that could result in millions of dollars of earnings for the lawyers managing those processes. A bankruptcy filing by General Motors and Chrysler would cost US taxpayers four times more than the amount of federal bridge loans being considered this week by Congress, according to a new study conducted by international consulting firm BBK and Michigan-based Anderson Economic Group.
Edmunds’ AutoObserver.com reports, “The study, using the fall of energy giant Enron as a basis, estimated bankruptcy lawyers would receive in the range of US$1bn to $2bn in fees from automaker bankruptcies. And that excludes the accountants, auditors and investment bankers that would be involved.”
Another irony, according to Edmunds: many experts have pointed out the inconsistency of easily directing funds to white collar banks, but dismissing the idea of supporting the blue collar auto industry.
“Bailout money has been earmarked for small businesses, and some of the small businesses that have consistently contributed millions of tax dollars over the years are local dealerships who have not yet benefited from funds,” said Edmunds.com editor Karl Brauer. “It’s a complicated web, but everything is connected.”