While there’s no automobile exchange traded fund (ETF), the implications for the economy and other ETFs are large if the Big Three fail are wide-reaching.
Congress will begin their debate over how to help General Motors (GM), Ford (F) and Chrysler LLC before the economy takes another hit.
Chris Isodore for CNN Money explains that the Big Three of Detroit are next in line for federal aid in the form of $25 billion in loans until 2010. Around 1.6 million jobs are under the Big Three and all three automakers are at risk of losing money in 2009 if there is no assistance.
Julie Hirschfeld Davis for Associated Press reports that Democratic congressional leaders want to tap the $700 billion Wall Street rescue package for new loans to help the U.S. auto industry. However, President George W. Bush and GOP lawmakers instead propose diverting $25 billion in loans approved by Congress in September – originally for retrofitting their factories to make more fuel-efficient cars – to cover their urgent needs.
Catherine Rampell for The New York Times reports that the auto industry supports 1 out of every 10 jobs in the United States, according to a study. The study concludes that “new vehicle production, sales, and other jobs related to the use of automobiles are responsible for 1 out of every 10 jobs in the U.S economy.
The scope of this 2003 study was actually very broad and somewhat misleading. Although the 1/10 ratio is far-fetched, it is possible, but highly unlikely. It can’t be denied, though, that a failure of our auto industry would affect many individuals and economic areas, including retail (20% of retail spending is auto-related), industrial stocks, steel demand and more.
Wall Street is making a tepid advance today, as volatility and uncertainty rule the markets. Joel Del Bruno and Madlen Read for Associated Press report that many retail investors to the sidelines, while big institutional traders such as hedge funds keep major stock indexes vacillating. Many economists are calling out “recession” and this could be the worst one in decades.
Meanwhile, Henry Paulson, Secretary of Treasury, continues to support his stance on the $700 billion bailout and refuses to shift the funds toward the auto industry. Although having a U.S. auto company fail during such a fragile time for the economy would not be a “good thing,” Paulson told the House Financial Services Committee that he remains against diverting the bailout money, reports Jeannine Aversa for Associated Press.
Despite the Democrats call, and the Detroit’s Big Three, both Bernanke and Paulson are sticking to their opposition regarding a bailout of the auto industry and remain defensive on their strategy for their bailout plan.
They simply do not see the purpose of the Federal aid going to the auto industry, which the capital was intended for shaky financial markets that would, in turn, help stabilize the broader economy.