Stephanie Mencimer makes the case that Bush’s auto bailout will not help consumers buy cars. Her reasoning: many are already bogged down with existing auto loans, issued by the Big Three, with 85% of loan-holders in negative equity. Most of these car buyers owe $4,400 more than their cars are worth.

According to Mencimer, Detroit has been squeezing local dealerships for more profits in recent years, which means that dealerships make their money through their finance divisions, getting car buyers to take out loans provided by or packaged by the dealership.

This extends to the automakers themselves; in 2002, GM, for instance, made 90% of its profits from its finance division, General Motors Acceptance Corp (GMAC). Half of GMAC’s profits, in turn, came from home mortgages and had nothing to do with cars.

How do dealers make their money on loans? They encourage buyers to roll an old loan– worth more than the old car– into a new loan for a new car, and they virtually guarantee this will happen with American-made cars by stretching terms to six or seven years, longer than most cars will last. The companies then repackage those loans, subprime-style, and sell them on Wall Street as securities, making a tidy profit in the process.

“Ultimately, no matter how much money Congress throws at the automakers, it’s car buyers who will rescue them or not.” — Rosemary Shahan, head of Consumers for Auto Reliability and Safety

Pat Buchanan is amazed the Senate Republicans are blocking a bailout of automakers, especially since the proposed $14 billion would be a fraction of the $700 billion they just approved for banks under the TARP scheme.

The UAW has agreed to make concessions on a health care trust and in a rule requiring the Big Three to continue to pay 95 percent of an employee’s salary even if their plant has closed down entirely.

The contract stipulation has cost GM, Ford and Chrysler millions of dollars and has been blamed for contributing to Detroit’s current economic woes.

The pay arrangement was confirmed by Chrysler chief Robert Nardelli in hearings before Congress last week, when Nardelli confirmed that Chrysler was still responsible for 95% of an employee’s salary, whether the employee’s plant was open or not. Under the plan, called the Jobs Bank, employees receive 95% of their salaries for the rest of their lives if their plant closes. The program was established more than 20 years ago.

None of the companies have revealed just how much they’ve spent on Jobs Bank, but in four-year labor contracts signed in 2003, GM set aside $2.1 billion for the program, Ford $944 million and Chrysler $501 million.