The White House stuffed the stockings of two domestic automakers with a last-minute loan package to help these ailing companies
through the first quarter of the new year. Hopefully, these efforts can repair the business of stateside car manufacturers
and get them back on the road to success. This, in turn, can also help bolster the aftermarket throughout otherwise troubled
economic times.
GM and Chrysler will receive $13.4 billion in Treasury loans, which could be followed by an additional $4 billion in March.
This will require compromise from the automakers, shown through reductions to their debt obligations and an agreement with
the automakers' union to cut wages and benefits.
A relief package will offer a "psychological advantage," says Joe Catalano, chief operating officer for Autobacs Strauss.
"I do think that there's a tremendous psychological effect on the whole economy, which will once again bring an increase in
consumer confidence that will help the aftermarket in the short term," he said before the bailout was approved.
And any help from the government will lead to a more robust aftermarket in the long-term, say aftermarket executives. Overall,
2009 should be a better year for the aftermarket than some expect. People are keeping their vehicles longer, and many of these
vehicles have reached their "sweet spot," the point at which it's prime for replacement parts. Deferred maintenance also is
leading to bigger-ticket items, estimate a number of industry leaders. "This has certainly been a volatile year for the global economy," says Steve Handschuh, president and COO of the Automotive
Aftermarket Suppliers Association (AASA). However, "there are definitely bright spots in our industry and opportunities ahead."
For one, Handschuh notes "Research suggests that critical repair components in vehicles eight years old or older fail at a
rate double that of (components) less than eight years old. At present, 56 percent of all vehicles on the road are more than
eight years old. This bodes well for the future of our industry."
The road ahead for OEMs and their suppliers will be more difficult. They will be forced to rethink the way they go to market,
their product lines and overall operations, while unions will need to retool salaries, job structures and their future with
vehicle manufacturing. This will likely involve adopting the business model of Asian carmakers that build vehicles and parts
in the U.S.
What happened?
Right at press time, the White House passed the $13.4 billion short-term loan package to get GM and Chrysler through the end
of the year using part of the $700 billion from the Troubled Asset Relief Program (TARP) funds, which were set aside for the
financial bailout last fall. ($9.4 billion is slated for GM and $4 billion for Chrysler. For now, Ford will not receive any
federal assistance.)
Another $4 billion would be made available to the companies in March, provided they can demonstrate financial viability. If
not, the loans will be recalled, most likely leading the companies directly to bankruptcy.
The relief sought by automakers was initially estimated at $15 billion, but ballooned to $34 billion when the Big Three each
pleaded their case individually to Congress. The result was a proposal for an amended $14 billion, just enough to stop financial
losses until a new administration and different Congress could take over. Passed in the House, it was then was killed in the
Senate when parties could not agree on items like reduced worker salaries and the shifting of health care to a government
fund.
But unwilling to let the U.S. economy suffer another blow, the Bush administration approved the loans without Congress' consent,
though the loan package did include many of the restrictions and concessions addressed in the failed legislation.
And though costly, the bailout's price tag is cheap compared to what bankruptcy could cost taxpayers — up to four times more
than the bridge loan proposal, with no chance of repayment — according to a study by Anderson Economic Group and BBK.
