Though Chrysler isn't owned by the US Government like General Motors, the deal that was structured was dictated by the government.
I wonder what the bankruptcy deal for Chrysler would have looked like if the Feds had kept their hands off?
Likewise, what would a restructured GM look like if the Feds had kept their hands off?
Instead, we have the Federal Government in the auto business.
It is now Government Motors.
Here is an article itemizing what is wrong with this picture.
Excerpts:
If Obama has no interest in running GM or the car industry, why did he support onerous and expensive social engineering via fuel standards at the time when the auto industry and consumers were suffering most?
If Obama has no interest in running GM, why did his administration bankroll and nationalize the company while perpetuating the myth that it could save it, after nearly every expert on the planet understood its fate was bankruptcy?
If the administration has no interest in making "difficult decisions," why did it push out GM's CEO, Rick Wagoner, and appoint yes man Fritz Henderson (who conveniently abandoned GM's long-standing opposition to economically destructive fuel-efficiency regulations)?
If Obama has no interest in running GM, why, as The Wall Street Journal pointed out, did the administration give assurance to the city of Detroit that GM would not move its headquarters?
And why did the Treasury Department strong-arm bondholders, wipe out all shareholders and magically erase almost all of the $172 billion of debt rather than allow these issues to be worked out impartially during a traditional bankruptcy?
If it's not about having the Obama administration run things, why did the president hand the United Auto Workers, a rock-ribbed political supporter, a sweetheart ownership deal for pennies on the dollar?
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Its an outrage.
UPDATE: In the end, the deal may go through as is but for the moment the US Supreme Court has issued an order staying the purchase of shares in Chrysler by Fiat. Excerpt:
Reporting from Washington -- The Supreme Court issued a one-line order Monday afternoon that keeps on hold for now the Chrysler bankruptcy deal that would lead to a merger with Italian automaker Fiat.
Since Saturday, the justices have been considering several emergency appeals challenging the deal. One from several Indiana pension funds contends that the deal is illegal and unconstitutional because it shortchanges these bond holders. They would receive only 29 cents on the dollar for their bonds, and they say Chrysler's unions and employees were treated better in the bankruptcy.
I wonder if anyone is/will challenge the GM bankruptcy plan?
2 comments:
You quoted:
"If Obama has no interest in running GM, why did his administration bankroll and nationalize the company while perpetuating the myth that it could save it, after nearly every expert on the planet understood its fate was bankruptcy?"
I think the author got a few things mixed up.
First, nobody perpetuated the illusion that the money loaned to GM was guaranteed to have savd it. In fact, when the Bush administration started loaning the money, it had only hoped to buy GM time to work things out. The Obama administration continued the same policy with the same hope.
Secondly, the intention of both adminstrations was not to nationalize the car company. If they had wanted to nationalize GM, they would not have loaned it any money to begin with and take it over as it goes into bankruptcy. They would have done the same to Chrysler and not let it be acquired by Fiat.
Finally, the take-over of the company was a consequence of loaning GM the money. As most people had predicted correctly, the bridging loan extended to GM did not help it avert a bankruptcy. The government faces two choices; forteit the 26 billion dollar it has loaned GM as it seeks credit protection, or convert the loan into a 60% equity stake, with the hope that the stock will be worth something when the company comes out of it. The government made the logical choice.
I found a lot of the conservative's understanding of the event appallingly shallow, with a persistence goal to portray the Obama administration with the hidden agenda to nationalize every industry (remember the scare about bank nationalization?). A casual investigation of his policies in this and other events did not lead me to believe he has such an intention.
Indeed, the Obama administration could defuse a lot of concerns if they surrender the government's shares in the company in a timely fashion and live up to their rhetoric of not micromanaging the company from Washington DC.
I would guess the author of the Reason.com piece was already objecting to the Bush bailout from last fall.
This Cato.org item ....
http://www.cato.org/pub_display.php?pub_id=10270
called the Bush action the original sin that made nationalization almost inevitable.
Excerpt:
"Bush took the fateful decision of circumventing Congress and diverting $15.4 billion from Trouble Asset Relief Program funds to GM (in the chummy spirit of avoiding tough news around the holidays).
That was the original sin. George W. Bush is very much complicit in the nationalization of GM and the cascade of similar interventions that may follow. Had Bush not funded GM in December (under questionable authority, no less), the company probably would have filed for bankruptcy on Jan. 1, at which point prospective buyers, both foreign and domestic, would have surfaced and made bids for spin-off assets or equity stakes in the "New GM," just as is happening now."
In that regard, I'd have to agree that both administrations had a hand in the situation.
However, one does wonder how a bankruptcy judge would have structured the Chrysler deal and the GM deal?
One wonders if the UAW would have come out better or worse under a bankruptcy judge as opposed to the Federal sponsored plan?
Excerpting the Cato item again:
"Of course, a bankruptcy judge, acting in an apolitical environment, would have had to determine whether GM could emerge from Chapter 11 as a going concern. That determination might have necessitated different concessions from different stakeholders. For example, the United Auto Workers union might have had to accept real pay cuts (not just revamped work rules) and the secured bondholders might not have been strong-armed into taking pennies on their investment dollars. And, certainly, taxpayer resources would not have been tapped. Sure, there would have been plant closures, dealership terminations and jobs losses, just as there are under the current nationalization plan.
But the path we've taken, regrettably, goes through an expensive, political minefield. If GM emerges from bankruptcy organized and governed by the plan created by the Obama administration, it is impossible to see how free markets will have anything to do with the U.S. auto industry henceforth. With taxpayers on the hook for $50 billion (at a minimum), the administration will do whatever it has to - including tilting the playing field with policies that induce consumers to buy GM, hamstring GM's competition or subsidize its costs - for GM to succeed."
I suppose the other possibility is that the Feds will get out sooner rather than later and perhaps takes some losses but leave a restructured GM to its fate without government control.
If the Obama administration takes the latter course, one would have to give them credit for letting the free markets work.
We shall see!
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