Why Auto Bailout More Resisted Than Bank Rescue

Frankly, the banks' prospects of making money are better.
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Why is there more hesitancy to bail out the Big Three automakers as opposed to the banks?

It isn't about the cars. The Big Three --


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General Motors

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-- make fuel-efficient autos, even if they mostly push gas-guzzling trucks and SUVs. They have hybrid cars, too.

It isn't just about foreign competitors.


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are both seeing dramatic decreases in car sales.

GM sales were down 15% in September, but Toyota's were down 35%. Their stocks have also plummeted in value. GM's shares have dropped a staggering 87%, but the big three Japanese automakers have on average slid 51%.

Ultimately, it's that the U.S. automakers don't have more cash coming in than going out. Business rule No. 1 is make money.

According to Argus analyst Kevin Tynan, GM had a net cash shortfall of $13.8 billion at the end of 2005, then another shortfall of $12.3 billion for 2006 and then again $12.1 billion for 2007. Tynan expects it to burn through $1 billion of cash per month.

The automakers keep screaming, Why did the banks get bailouts and not why not us? Simply put: You don't make money. The chance of getting the loans paid back is slim.

Plus, the financial institutions haven't really gotten a bailout. So far, little money has gone to buying back toxic credit-default swaps. Most of the TARP money spent has been to buy up commercial paper and preferred stock, which the

Federal Reserve

can do for the automakers as well.

And while the automakers scream that they can't be allowed to go bankrupt, look at Lehman Brothers. Its assets tower over GM's. Many employees lost their jobs, but several units got picked up. Guess which ones? The profitable ones.

GM says its financing arm GMAC can't access the credit markets in order to get cash to lend to consumers to buy its cars. OK, how about the Fed buy some GMAC commercial paper? There's a way to access some TARP money through the Commercial Paper Funding Facility. Done. Money for customer's car loans.

But does that solve the problem? No, because even when GM was selling 1.5 million cars a month, it still wasn't profitable. The company currently has a debt-to-capital ratio of 500%. Too much debt and not enough profit.

How about selling assets? GM admits that its Saturn unit hasn't performed up to expectations. So it's going to try to sell it. Now? In these capital markets? GM had to have known that Saturn wasn't doing well, so why didn't it dump it on some poor unsuspecting private-equity firm like Cerberus when money was cheap? Poor business decisions, that's why.

Why have companies like

Bear Stearns


Merrill Lynch


, Washington Mutual, Wachovia and National City gotten bought up?

Because even with their warts, they can still make money. The buyers waited until the prices hit rock bottom and then reached for the checkbook. Smart business decisions. Vultures, perhaps, but that is the name of the game in business. Making money. Something the automakers have lost sight of.