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GM, Chrysler, and Obama

Detroit News

General Motors couldn't possibly have imagined this outcome when it made the calculated decision last fall to ask for survival loans from the federal government instead of taking its chances on a bankruptcy filing. Now, GM may get the bankruptcy anyway, and its future will apparently be dictated by a White House whose vision for the company is driven more by ideology than the marketplace . . .

While the president said repeatedly that he "has no interest" in running a car company, he appears to be very much running GM. The question of most concern to Detroit is: Will he run them into the ground?

The government critique said GM is a "generation behind" Toyota in advanced, "green powertrain" development. And it said GM is still too heavily reliant on trucks and SUVs for its revenues, making it difficult for it to pivot to smaller, more fuel-efficient cars.

James Harbour, founding editor of the respected Harbour Report on auto firm productivity and a tough critic of the domestic industry in the past, disputes the administration's finding. "Nobody is lagging anybody" on technology, Harbour says.

The sales figures show that the public isn't currently looking to GM and Chrysler for small cars. GM sold 50 percent more trucks than cars in the first two months of this year, and the figures were the same last year . . .

GM, it is true, must learn to turn more of a profit on smaller vehicles, as have the Japanese automakers. But the administration has to be careful not to push the firm too far too fast . . .

Curiously, the task force also dinged GM for devoting too much of its alternative-vehicle resources to the battery powered Volt, a vehicle developed almost solely to please the company's Washington critics.

Chrysler, meanwhile, was ordered to complete a merger with the Italian automaker Fiat . . . Imagine the impact that threat will have on near-term Chrysler sales . . .

Chicago Tribune

. . . On Monday, President Barack Obama postponed the day of reckoning. But he insisted that it will come, and soon.

The tough-love approach would have been better. Obama should have said, "You had three months to get the concessions you need to restore your financial health, and you failed. Good luck in bankruptcy court." Instead he let them off the hook, at least for now.

Leaving the companies to Chapter 11 would have made it easier to get the concessions they so desperately need. It would have allowed them to keep operating while waiting for an improvement in the economy and the arrival of new vehicles that could revive their fortunes. It would also have spared taxpayers significant further risk.

But allowing two major employers to take a step that could lead to their demise is more than the administration could stomach during a painful recession. So Obama chose the second-best option: holding out the possibility of more aid at the end of 60 days (GM) or 30 days (Chrysler), while demanding that they "work with creditors, unions and other stakeholders to fundamentally restructure" and thus "give the American people confidence in their long-term prospects for success." Chrysler would also have to reach an agreement to merge with Fiat to qualify for more help. In the meantime, Washington will assure them both "adequate working capital."

An ultimatum is more believable, of course, if you haven't just failed to follow through on a previous one . . .

New York Times

President Barack Obama struck an acceptable compromise on Monday between two unappealing options: letting General Motors and Chrysler go bankrupt right away or giving them tens of billions of dollars more while hoping for the best. Instead, he decided to finance their operations for just a matter of weeks while forcing them to come up with a better plan to overhaul their businesses. Now that the government is in control of the process, it must stick to its stated objectives and deadlines . . .

The government's $17.4 billion bailout of GM and Chrysler last year was the right move. Including jobs at parts manufacturers and car dealers, hundreds of thousands of jobs were on the line. Still, the automakers failed to put together adequate restructuring plans that guaranteed their survival . . .

The automakers failed to reach agreements with their bondholders, to convert debt into equity, or with the United Automobile Workers union, to use equity to finance a fund for retiree health care. The restructuring plans they offered were wildly optimistic. They presumed that the companies would keep most of their market share, a dubious assumption considering past performance. And their sales projections were out of touch with the precipitous decline in the American car market.

The government's new, forceful stance is more likely to produce a meaningful overhaul of the car industry. Forcing GM's chairman and chief executive, Rick Wagoner, to resign was a necessary step to bring in new leadership that can set the company on a new course. A government-backed bankruptcy process could be used to discard GM's liabilities and unwanted assets and produce a profitable, albeit smaller, car company. For Chrysler, a merger with Fiat appears to be a good fit.

There will be resistance to allowing GM to undergo a bankruptcy proceeding. If Chrysler is threatened with liquidation, there will be enormous pressure for the government to provide more money to save it. But the auto task force has come up with what seems to be the best shot we have at obtaining a viable auto industry. The president must stick to it.

GM, Chrysler, and Obama 03/31/09 [Last modified: Tuesday, March 31, 2009 7:05pm]
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