An audience of two

Sunday December 14, 2008

The auto bailout
So the big 3 auto manufacturers want the government to lend them more money than their entire market value. Why don't they just do a rights issue? Instead of "lending" them billions, why doesn't the government offer to buy the equivalent amount of newly issued stock? That way the existing shareholders get to vote on whether they want to go ahead with it - after all, it's a significant dilution and they already have money committed, but if the companies really are on the verge of bankruptcy then they shouldn't take much convincing. Other investors can get in on the deal if they want to, so it won't necessarily cost the taxpayer as much. There's the opportunity for reward if the bailout works with no greater risk of losing the taxpayers' money if the companies fail. Seems like a win-win to me.
Of course like any investor I'd want to see a decent, coherent business plan from the companies before investing.
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Tags: auto bailout chrysler ford gm