Auto%Indu s tr y%B a ilo u tVersusCash%fo r %C lu n k e r s(CARS:%Car%Allowa n ce%Reba t e%System)Lara$Cl a r kAnn$D i e nhartBrad$Ut e c htOutline• Conte x t• Bailou t• CARS• Comp a r i s on$of$B a i l out$and$CARS• Discus s i onKey%Player s• United $ States$F e deral$Go v e r nment:Depart ment$of $ Treasury ,$ Congres s ,Bush/Obama$A dminist r a Gons• The$D e t r oit$Big$Three:$GM,$Chrys l e r ,$ Ford(GMAC)• Taxpay e r sScene%b e f o r e %B a ilo u t%a n d %C A R S• Big$Th r e e $ r e duced$market$shares– GM’s$market$share$reduced$from$53%$in$1966$to20%$in$2008• Ineffici e nt$mana g e ment$policies• Previous$bailout$of$ Chrysler $ i n$1980sTime%Lin e %o f %E v e n ts• November 4, 2008: President Bush pushes for $25 billionloan to auto industry.• February 17, 2009: GM and Chrysler request additional $5billion.• March 30, 2009: President Obama insists on true changein management of automakers.• April to June 2009: Automakers begin Chapter 11bankruptcy protection proceedings.• July 24, 2009: CARS program begins.• August 25, 2009: CARS program ends because the $3billion in funding has been spent.Bailout%To ta lsGM: $ $ 5 0 . 4 $ billionChrysl e r : $$12.5$ billionGMAC: $$ 1 2 . 5 $ billionAuto$B a i l out$To t a l :$ $$75.4$b i l l i onTARP:$$7 0 0 $ billionBailout%M a pSource:http://bailout.propublica.org/main/map/indexBig$Three$A c ro s s $A m eri c aBailou t $ would$ not$on l y $ help$De t r oitMap from2006Bailout%Re q u ir e mentsGeneral%Motors• Sustainable$profitability• Healthy$balance$sheets• OperaGonal$restructuring• Technology$leadershipChrysler• Determined$not$to$be$viable$as$astand‐alone$company• Partnership$with$Fiat– Chrysler$ will$bene fit$from$Fiat’sadvance d$technol ogy$andefficient $ management$struc t ure– SGll$in$the$process$due$toaddiGon al$governmentrequirements• Stockholder$Cash‐outsGMAC%–%Financial%Services• ConGnue$to$help$buyers$and$dealersfinance$their$purchases• Must$take‐over$Chrysler$Financial• By$June$8,$2009$–$Plan$for$repaymentof$loan$to$be$submiced• $9.1B$must$be$new$capitalDiscus s io n %Q u e s NonsWh a t $ would$ have$happened $without$ t herecent$ a utomoGve$ind ustry$ba i l out?Wh a t $ r ole$did $ e mbedde d$polic i e s $ i n$the$Bi gThree$ play$in$ t heir$fin a ncial$pr oblems?Cash%fo r %C lu n k e r s• $3$bill i on$gove r nment$r e bate$program• $3,500$to$$4,500$r e bate$dependin g $ on$mpgimpro v e ment• 700,000$new$cars $ bought $ i n$less$than$30$days• $1$bill i on$spent$in$le s s $ t han$on e $ week• Popul a r $ programCash%fo r %C lu n k e r s %E lig ib ilityWhat Are the mpg* and Vehicle Category Requirements? If my trade-in vehicle is a... Then the new vehicle I buy must be a ... My new vehicle must get an mpg* of at least ... My new vehicle's mpg* must be higher than my trade-in vehicle's mpg* by... 4-9 mpg* Passenger Automobile 22 mpg* 10 mpg* or more 2-4 mpg* Passenger Automobile (must have an mpg* of 18 or less) Category 1 Truck 18 mpg* 5 mpg* or more 4-9 mpg* Passenger Automobile 22 mpg* 10 mpg* or more 2-4 mpg* Category 1 Truck: (must have an mpg* of 18 or less) Category 1 Truck 18 mpg* 5 mpg* or more 4-9 mpg* Passenger Automobile 22 mpg* 10 mpg* or more 2-4 mpg* Category 1 Truck 18 mpg* 5 mpg* or more 1 mpg* Category 2 Truck: (must have an mpg* of 18 or less) Category 2 Truck 15 mpg* 2 mpg* or more Category 2 Truck 15 mpg* NA‡ Category 3 Truck: Category 3 Truck NA‡ However, the new vehicle must be similar in size or smaller than the trade-inScrapp a g e %S c h e me• Program$in$U.K . $ before$U . S.$Cash $ f or$Clunkersprogra m• Simila r $ princip l e s• Trade‐ i n$based $ on$weig ht$(not $ mpg)History%of %S c r a p p a g e %P r o g r a ms Allan et al. 2009Cash%fo r %C lu n k e r sFuel%Eco n o my%Improv e ment • Trade‐ i n$average $ mpg:$15.8• New$mpg:$24.9• In$Aug ust$2009,$ i ncreased $ new$car$ f uelecono my$by$0. 9 $ mpgDOE 2009Cash%fo r %C lu n k e r sEconomic%SNm u lu s• SGmu l us$inter v e nGons$ s hould$ be$“Gme l y ,targeted,$and$t e mporary”$with $ r e s ults$tha t $ a r e“speedy ,$ s ubstanGated,$and$sust a i ned”• Tax$rebate$rese a r c h• Not$targeted• 50%$to$60%$of$rebate$spent$within$first$6$monthsCash%fo r %C lu n k e r s %T a r g e Nng• How$many$of $ t he$700,000 $ c a r s $ would$ havebeen$purchas e d$without$the $ Cash$fo r $ Clunker sprogra m?• Who$i s $ using$C a s h$for$C l unkers?Cash%fo r %C lu n k e r s %T a r g e Nng• EsGma t e s $ of$addi Gonal$c a r $ s a l e s $ due$to$ Cashfor$Cl unkers$r a nge$from$200,000$ t o$400,000(of$700 ,0 0 0 $ t otal).Cash%fo r %C lu n k e r sReturn%o n %In v e s tment• $25,000$per$new $ c a r $ x $ 7 0 0 ,0 0 0 $ e s Gmated$ newcars$purchased$=$$17.5 $ billion• $25,000$per$new $ c a r $ x $ 4 0 0 ,0 0 0 $ e s GmatedaddiG onal$car $ s a l e s $ due$to$ Cash$fo r $ Clunker sprogra m$=$$10$billion• $25,000$per$new $ c a r $ x $ 2 0 0 ,0 0 0 $ e s GmatedaddiG onal$car $ s a l e s $ due$to$ Cash$fo r $ Clunker sprogra m$=$$5$b i l l i onCash%fo r %C lu n k e r s %C r iNcisms• Not meeting environmental goals• “Car scrapping initiatives are often mistakenly labeled as greenbecause they subsidize the purchase of cars that are usually,more fuel-efficient than those they replace, but the schemes areby their nature wasteful and routinely fail to take intoconsideration the amount of energy required to build a vehicle inthe first place.” - Andrew Davis• Administrative complications• “On the other hand, the clunker program was overly complicated, anightmare to manage for dealers and difficult to understand forconsumers. I would give the pure sales impact of the program an A andthe administration of the program a D.” - Jess ToprakCash%fo r %C lu n k e r sOther%Eff e c ts• Create interest in car-buying• Alter car-buying preferences• Scrappage program in SpainDiscus s io n %Q u e s NonsIs$the$Cash $ f or$Clunkers$pr ogram$a$ c ost‐effecGv e $ s Gmulus $ program ?$$Is$th e $ Cash$fo rClunk e r s $ program $ more$eff e c Gve$for$ e c onomicsGmul us$or$for$envir onment a l $ benefit?How$could$a$Cash$for$C l unkers$program $ t a r g e tconsu mers$wh o$woul d$not$otherwi s epurch a s e $ a $ new$car?Bailout%Ve r s u s %C a s h %f o r %C lu n k e r s Car Industry Bailout Cash for Clunkers Total Funding $73.35 Billion $3 Billion Time Frame December 2008 to 2016 August 2009 Direct Recipients of Funds General Motors,
View Full Document
Unlocking...