Bailing out banks, bailing out the auto industry, and now the U.S. Treasury just opened the door for financing more companies - who’s it going to be next? Through their broad guidelines on aiding the ailing auto industry, the Treasury just made it easier for more companies to get their cut of the bailout funding.
The new guidelines basically allow officials to provide funds to companies that are deemed to be important to making or financing cars. In short, this means that they can use money from the Troubled Asset Relief Program to fund loans above and beyond those already committed to GM, GMAC and Chrysler.
The scary thing about all of this is that it leaves the door wide open for other industries that will be able to make just as good of a case as to why they need the money. This could include industries such as those that make automotive parts in case they are unable to collect on the money owned by automakers. As the government begins funding more and more industries, the question is, where will the funding stop?
The guidelines for the government aren’t binding, so that leaves President-elect Obama plenty of room to decide who gets the money. Originally, the bailout was designed to buy assets from banks, but it has spiraled into so much more.
Currently, the treasury has provided $6 billion in aid to GMAC (the financing arm of GM) and up to 17.4 billion for GM and Chrysler - all from the $700 billion bank rescue fund.
The guidelines state “Treasury will determine the form, terms and conditions of any investment made pursuant to this program on a case-by-case basis. Treasury may consider, among other things, the importance of the institution to production by, or financing of, the American automotive industry.”
Since the Treasury decided to strike up a deal with GMAC, they’ve opened up a whole new can of worms. And the Treasury is claiming it is part of a broader program that will assist the industry in becoming financially viable.
We’ll just have to wait and see what comes of all this and who ends up getting a piece of the funding. At this point, it could be anyone.