• Dec 2nd 2010 at 6:01PM
  • 23
The U.S. government's Commercial Paper Funding Facility was established towards the tail-end of 2008. The CPFF was created to offer companies short-terms loan when traditional means of establishing credit were crumbling. Lehman Brothers had collapsed and AIG was taking expensive trips while showing the world its pocket lint, but that didn't mean that other companies weren't in need of cash, and Washington stepped in to oblige. According to Bloomberg, among those parties taking advantage of the Federal Reserve program were a long list of automotive clients, German automaker BMW among them.

According to Bloomberg, German automaker secured funding assistance intermittently between 2008 and 2009, with the largest single transaction a reported $3.62 billion. This line of credit helped BMW survive during a time when other automakers were getting by on life support. Some of the funds were used to expand the South Carolina facility that produces X3, X5 and X6 models. While suffering its lowest profit in a decade, BMW was still able to produce a positive cash flow of nearly $2 billion.

Taking a look at the data provided by the Feds (download the spreadsheet here – *Warning: Excel spreadsheet), we see that a number of automakers and compnaies also made use of the CPFF, including Harley-Davidson (33 separate instances totaling $2.3 billion), Toyota, Ford, Chrysler, General Motors and Mitsubishi.

[Sources: Bloomberg, The Washington Post | Image: Drew Phillips/AOL]

I'm reporting this comment as:

Reported comments and users are reviewed by Autoblog staff 24 hours a day, seven days a week to determine whether they violate Community Guideline. Accounts are penalized for Community Guidelines violations and serious or repeated violations can lead to account termination.

    • 1 Second Ago
      • 4 Years Ago
      Good point about the 1980s tariff, katshot, but one minor correction: if I recall, it wasn't Congress that enacted the tariff, but the Int'l Trade Commission (technically executive branch but an independent regulatory agency) recommended it to the Reagan administration which adopted it.
      • 4 Years Ago
      "German automaker secured funding assistance intermittently between 2008 and 2009, with the largest single transaction a reported $3.62 billion... BMW was still able to produce a positive cash flow of nearly $2 billion."

      Right. They just used the Fed to pay for cap improvement and used the money to keep lines of credit open so their profits would not need to be diverted, no?
        • 4 Years Ago
        it proves somewhat that BMW's are not overpriced and worth their money.

        : )

        while as thing build in detroit are not, disposible car.
      • 4 Years Ago
      That is surprising news. Who would of thought BMW needed the credit line? I would have suspected the German gov't would have came to their aid.
        • 4 Years Ago
        BMW used the money to expand the South Carolina plant and created almost 1000 new jobs and they repaid back the loan with interest.

        Haters ------------------------>
      • 4 Years Ago
      Japan is only an economic ally in the sense that we buy their stuff. It's a heavily slanted relationship.
        • 4 Years Ago
        Yea, but the relationship was intentional. It was a way for the US to keep Japan and Germany at shoulder's length.
      • 4 Years Ago
      Well, I will not be buying a Hog or a BMW.
      • 4 Years Ago
      Over 60 years ago. Times change, countries change, people change. Japan is one of our closest economic allies now. Past is past, let it go.
      • 4 Years Ago
      This article is a little misleading. The program was intended to shore up the commercial paper markets, not as a bailout. The fed bought low-risk commercial paper, which was intended to make other commercial paper look better to investment banks. The fed intentionally bought low-risk paper and was in no way a bailout of the companies they bought it from. The Fed got back everything they lent out and no money was lost on the program.

      Commercial paper is a very low-risk, short-term loan taken at low interest rates by corporations to pay things like payroll as finances are moved from one column to another. Think of it like the grace period between when you make a purchase on your AMEX that you pay off every month. In that case they make money from fees, here they make money from a low interest rates. This commercial paper was bought on the open market to encourage lending and did so successfully.
        • 4 Years Ago
        ^ thank you
        • 4 Years Ago
        GMAC was not in fairly good shape, they were in terrible shape. Ford wasn't in good shape either. Chrysler? Bad.

        Your argument this is low risk commercial paper doesn't hold at all.

        How you say it doesn't benefit those they bought commercial paper from doesn't make sense either. These companies were able to float their debt and if they needed more (and all 3 did), it made it easier to get more. So yes, it benefited more companies than these. But it also benefited these. It benefited the biggest borrowers the most, and we're looking at some of the biggest borrowers.

        And again, since it benefited other borrowers too it allowed people to borrow money to buy cars from all these companies listed and other car makers too.

        As I said, the car companies all enjoyed a serious bailout. None as big as GM (from what I can tell), but all benefited substantially.
        • 4 Years Ago
        You could call it a bailout of the commercial paper market, but not of the companies it was bought from. The fed intentionally bought commercial paper from companies that were in fairly good financial shape and had little chance of default- and there were no defaults. Those companies offer the lowest level of interest rates, so little money was to be made by the fed, but that wasn't the purpose. These companies could easily get private financing, but the fed wanted to pick them up before other investment banks had the opportunity.

        The reason being is they wanted to pick up all the lowest risk commercial paper in order to take those investments away from banks and make those banks (who had limited money to buy commercial paper at the time) more likely to invest the money thay have available in other commercial paper. In addition, they federally insured money market accounts. So when you put money in your money market savings account, that money went to buy up commercial paper from companies other than the companies that the FED had bought the commercial paper from, making credit more readily available to those other companies. If it is a bailout of companies borrowing money, it is a bailout of the companies that the FED did NOT buy commercial paper from, rather than the ones it did.
        • 4 Years Ago
        The program buying up relatively low-risk commercial paper isn't an argument- it is a description of the program. The Fed bought up as much available commercial paper as possible on the open market at as low of a risk as they could to prop up the commercial paper market (which is funded by money market funds and savings accounts). It was in no way targeted to bail out any specific industry. Large profitable companies like GE sold some of the most commercial paper.

        This is not a bailout of the companies the paper was bought from. Commercial paper does not cover structural issues in companies or pay for things that companies do not have finances to cover- just short term expenses while funds are transferred. It is not corporate bonds and does not cover capital expenditures- you can't build factories with it. It was not a bailout of the auto industry. However, it did shore up the banking industry and freed up credit for everything that people and coporations use credit for.
        • 4 Years Ago
        I agree with you on a lot of things except that it wasn't a bailout. If the markets and companies were healthy, these steps would never have been taken. Furthermore the huge infusion of liquidity didn't just benefit the markets, it benefited the companies involved. Especially ones who were seeking loans from the commercial paper market at the time, which most if not all of them were.

        Finally, this program, like Cash for Clunkers helped ease credit so that car companies could sell more cars. ALL the companies.

        Every car company got a help from the government in this timeframe, and the large ones got a lot of help.
      • 4 Years Ago
      Hmmmm commercial paper funding, so they print the money then they pay them self to print it? Thank you big government. No wonder the Chinese are buying up America.
        • 4 Years Ago
        @ gerrrg:
        Well said. Nice to see that some people actually understand what was done, and why.
        • 4 Years Ago
        You misunderstand what this program was for.

        The Feds were handing out short-term loans - think revolving credit access - for daily operations. None of the money was lost, since it was all short-term (measured in days and months, not years), and allowed these businesses to keep doors open.

        At the time, banks were forced to cut off credit access to regain leverage with their rapidly shrinking capital from the mortgage losses. Without enough revolving credit, many businesses closed their doors permanently or reduced staff to make payroll, because of the way cash flow works.

        Without the Feds stepping in with this program, literally tens of millions of jobs would be disappearing monthly, around the world as companies rapidly slashed to adjust to cash flow and a wave of fear crashing entire markets.

        Do NOT underestimate how close we were to complete meltdown.
    • Load More Comments
    Share This Photo X