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Detroit Hopes for Friendlier White House

A group of seemingly disparate headlines will hit the tape Friday morning, when GM (GM - Get Report) and Ford (F - Get Report) are expected to weigh in with dismal earnings reports, and the Bureau of Labor Statistics releases what will likely be a sharp jump in new monthly jobless figures.

For president-elect Barack Obama, those headlines are likely to color some of the first actions he takes when he moves into the White House.

It's hard to overstate the importance of Detroit when looking at any efforts to keep the economy from falling into an especially steep recession. Hundreds of thousands of workers are employed by the automakers, their parts suppliers, auto dealers and all the secondary businesses that serve the employees of these firms.

On the surface, the U.S. auto industry's problems appear to be a function of very weak demand for cars and trucks. High gas prices forced consumers out of the showroom, which means that Detroit will likely report its worst sales levels in nearly 20 years.

But in reality, the auto sector has very different problems, one of which can be partially remedied by more vigorous federal support -- access to funds to make car loans. Simply put, the automakers' financing arms have run low on funds, and the loans that they have made are increasingly turning sour. Distressed consumers fell behind on their mortgage payments and are now falling behind on their car payments, as well.

GMAC, which provides funds for auto leases and loans (along with some mortgages) just announced a $2.5 billion quarterly loss. That's more than 50% higher than the year-ago loss.
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F $13.44 0.86%
GM $31.00 1.50%
HMC $27.30 2.50%
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