Reuters reports that the Presidential Task Force on Automobiles (PTFOA) is taking a “hard line” on the next round of federal bailout bucks for Chrysler and GM. As we’re in the political realm, “hard line” means taxpayers will fund the automakers for the next 60 days while the PTFOA rolls up its sleeves and takes greater control of Chrysler and GM’s business. The implication: they’ll force the unions and bondholders to take a buzz cut and accept a government mandated debt-for-equity swap. Oh, and re-org GM’s Board of Directors to better suit their, uh, tastes.
“We have unfortunately concluded that neither plan submitted by either company represents viability and therefore does not warrant the substantial additional investments that they requested,” said a senior administration official, who asked not to be named.
Instead of granting GM’s request for up to $30 billion in loans, the administration only pledged to fund GM’s operations for the next 60 days while the top U.S. automaker develops an even more sweeping restructuring plan under new leadership.
GM CEO Rick Wagoner, who met on Friday with the task force, was forced out on Sunday at the request of [PTFOA Director Steve] Rattner, an official said. U.S. officials said plans were also underway to replace most of GM’s directors in the coming months.
So, instead of pulling the plug on Chrysler and GM, the PTFOA is, in effect, nationalizing the companies and THEN pumping tens of billions of taxpayer dollars into the new federally-approved automaker. It’s a hugely risky strategy, risking alienating Americans uncomfortable with government intervention. And there’s no guarantee (i.e., likelihood) that it would work.
i have a question,
if all goes well, and GM and Chrysler in someway miraculously turn around, i believe they will be the ones that pay off this record debt lent to them by the taxpayer…
however, if these companies go down all the way, or even C11, who will pick up the tab? will you guys, (the American taxpayer) have to re pay all that money to the US GOV? because it costs money to print money etc etc etc…..
I think the situation that they are attempting to avoid is pumping 10’s of billions more into these companies to keep them afloat for the next 5 years, then having them go into C11 and have the US takpayer be on the hook anyway.
If they can pull off a real turnaround then yes that would be preferable but the plan as it stands was not acceptable, but how are they going to invest in developing competative product when they owe many multiples of their market cap in debt to the govt and employee pensions?
Maybe we could nationalize them and finally be able to build MRAP’s at a reasonable pace. You know because these companies are critical to our defense and all. Now that I think of it I’m kind of serious about this , why are we paying them to crank out impalas to park in fields when we could actually get something we need out of this?
This way the taxpayers get to throw billions at these companies and then pay later when they go bankrupt. Delay the bankruptcy and use billions to payoff their supporters seems to be the government plan. There is no way for these companies to be successful.
Last major regime change by the government was the ousting of Hank Greenberg at AIG, opening the doors for we know what.
@Ronman
When the government borrows and prints trillions of dollars that they don’t have the almost inescapable result will be massive inflation. That is why gold and silver are so popular.
How is it that the cerebral menses crowd at Ceberus see no value injecting their chrysler with any more of their money, but the rest of us don’t get the word? If a dime was ever to be made, Ceberus would be selling stakes in chrysler to all comers. Chrysler is a now an American, formerly German and soon to be Italian company that Americans must save. Why do we favor the Italians over the Japanese in car bailouts? Why do we favor anyone? I believe some lesser Japanese brands are going by by with this depression, who says that we must prevent this? Just because Chrysler and GM are larger we must do this? With all Obama’s people have to do, don’t we at least deserve the best bang for the bucks for spent tax money?
Wow. Just wow. None of these dummycrats has so much as run a lemonaide stand in their lives, never mind a multi-billion dollar corporation. Not that the guys running GM and Chrysler have done anything except run the ships into the reef.
OK so Bahwny Fwank ran a gay-boy prostitution ring from his home, that’s not as complex as running a corporation.
This is the same bunch of government brainiacs that think we can spend our way back to prosperity – with more debt.
Any 9 year old could confirm for them that this won’t work.
Plus now we have a President firing someone he has no authority over in private industry. Not that Wagoner was doing anything good-that’s not the point.
Welcome to the People’s Republik of Amerika.
Well, i guess the “dummycrats” and Bawhny Fwank thought that a straight up bankruptcy was untenable in this economic environment. That’s the deal here – the companies either deal with a significant government intervention, or go bankrupt, which in the view of some would unsettle the shaky economy to an unacceptable degree.
It isn’t as simple as “stupid democrats want to make this a communist country!” That argument is oversimplified and rather embarrassing, in my opinion, to make. It’s easy to throw a fit and boo-hoo and call names, just like when people called Bush a fascist. It’s weak-sauce and doesn’t further the economic debate whatsoever – it’s sloganeering and often could be described as sophistry.
Also even a hint of gay bashing is completely unacceptable to me, but that’s another story.
I don’t personally fully agree with bailing out failing companies with federal dollars, ESPECIALLY private equity hedge-fund managers like those at Cerberus, but even the conservative Bush administration considered it necessary to intervene and dumped hundreds of billions of basically unregulated dollars on the table. The Obama administration clearly sees a similar need for government intervention.
I do agree with the thought that GM’s upper management was far too entrenched and stubborn to make the necessary changes to radically turn their company around in the short timetable. I think the gov’t is making a bet – a big change now with a hopefully shorter turnaround will be, in the long-term, more appealing to the people than a neverending bailout, sending a few billion dollars over every 3 months to a company that refuses to seriously change the way it does business.
Either way, this isn’t some simple argument that we can address by calling each other names and making outlandish accusations of Socialism/Communism – to do so indicates that one has a very weak idea of the true nature of these economic and political systems. Knee-jerk is fun and easy, but these aren’t times that call for shouting and rage – not yet, anyhow.
Although the proper solution, as clearly illustrated here at TTAC, would be C11, at least the PTFOA seems to be willing to make the hard choices that GM has been unwilling or unable to do.
The first step is recognizing that the business plans submitted by GM and Chrysler are complete BS – done!
The second step is getting rid of the management team that allowed this to happen – in process
The third step is to define a new vision of what kind of independent, profitable companies we want GM and Chrysler to be and then install a management team willing and capable of carrying it out. – Wait and see.
“Instead of granting GM’s request for up to $30 billion in loans, the administration only pledged to fund GM’s operations for the next 60 days while the top U.S. automaker develops an even more sweeping restructuring plan under new leadership.”
So only $29.9B then? So why now should any bondholders take a major haircut as apposed to before when they knew C11 was the future for GM? Why give them more money while waiting for the new, new, new plan that the Pain in The FA will reject and then push GM into C11 in 60 days instead of just NOT? What is to become of these billions of our tax dollars when GM goes C11?
@Jakecarolan
Actually this is what the fascists were actually about.
The end of capitalism and government control of the industry and banks. Hitler didn’t call his party the “National Socialist workers Party” for nothing. Even down to being pro union.
A question for the accountants…
If you’re a GM Bond holder, just how can the Gov’t “Force” you to give up that bond in exchange for anything else – in this case GM Stock?
bluecon :
Godwin’s law: The first person to call the other a Nazi automatically loses the argument.
In any case, one of the enemies of the Nazis were, um, the Soviet Union.
MikeInCanada :
March 30th, 2009 at 9:02 am
A question for the accountants…
If you’re a GM Bond holder, just how can the Gov’t “Force” you to give up that bond in exchange for anything else – in this case GM Stock?
The government just tells them to take stock or it will force GM into bankruptcy and they get nothing.
@jerry_weber:
I think you mean Mensa. Menses is something completely different.
Thank you, Geotpf for recognizing & calling Godwin’s law. It’s a great one. For a while it was liberals that kept getting flagged, but now it is conservative’s turn to overreact and make ridiculous claims of fascism and Nazi parallels. The pendulum swings, the pendulum swings.
Also I must say I’m kind of annoyed that someone deleted my use of “gay-boy” in my initial response, which has gone unedited in menno’s usage in reference to Barney Frank. I would have never used such a repugnant phrase in normal writing, but I considered menno’s usage somewhat offensive and used the phrase in my comment to point out this fact. Boo-urns for ridiculing and belittling people for sexual preference.
Geotpf:
“In any case, one of the enemies of the Nazis were, um, the Soviet Union.”
Actually… no they weren’t. Germany and the Soviet Union had a non-aggression treaty. They were quite cooperative with each other, carving up Poland for instance after Hitler attacked on 9/01/1939. And it would have stayed that way, but for Hitler’s mistake of invading the Soviet Union in June 1941. He thought it would be a quick victory, thus sealing his eventual fate.