Detroit needs a thorough cleansing, from top to bottom. Think along this line and the answer to the question of how to handle the bail out becomes self-evident. But given an unemployment rate at 6.7 percent and growing, Congress hit the panic button and succumbed to the pleas for help from Detroit. Nancy Pelosi decided not to play scrooge with your money. And that’s not good. We’re not against saving jobs, and preserving holiday cheer. But it’s just plain dumb to give money to those who can’t manage their own businesses. It’s like giving crack as a Xmas present to a crack addict. Recovery just gets delayed.

The United Auto Workers (UAW) brought all its chairmen and presidents of Detroit 3 locals together in Detroit yesterday for an “emergency meeting.” Translation: a publicity stunt to show the politicians in Washington that the union’s part of the solution, and not the problem. (Well, actually the unions were part of the problem, but that’s managements fault for giving in to union demands decades ago.) Afterwards, Big Ron told everyone that the UAW will “suspend the JOBS Bank” (money for nothing and your checks for free) and delay the VEBA funding payments (XXXL lootable health care fund). Woohoo! One slight problem: we still don’t know the truth about the “concessions.” All we know is that the 2007 contract won’t be re-opened, just slightly modified. In other words, fuhgedabout any major revisions JOBS Bank (your money for nothing and your checks for free) suspension might mean that the language in the contract stays, just that Big Ron will suspend it for a week or a month or until and unless Detroit gets a bailout. Yeah, big savings there. Not. And the delated GM payment into the health care VEBA superfund? Ok, fine. Detroit can make the payment later into the Mother of All Lootable Bank Accounts. But in the meantime, Detroit still must pay retiree healthcare in 2010 and beyond– until it can make the payment. So it’s just like before: an expensive drag on earnings. And yet the press is abuzz with talk of “concessions.” Fool them once…

TTAC could have saved Congress a ton of time and billions of dollars if the politicos had just read these pages over the last few years. We’ve diagnosed the patients, begged them to seek help, outlined some cures, and prayed that our worst fears would never be realized. And yet, here we are – in the midst of the biggest industrial meltdown of all times for the US auto industry. So again, we’ll just try to neatly summarize the actions that Congress needs to take now. It’s not pretty, probably isn’t politically correct, and will piss off a whole bunch of people. We’re hoping to influence you – our audience – to spread the word to ensure that Congress makes the right moves. After all, this is a democracy. The press – which includes TTAC – can make a difference in getting to the truth, and that’s what Congress needs to know today.

If you need proof that GM’s management hasn’t changed, consider the fact that the company is preparing not one but two rescue plans for Congress, The automaker claims it needs both a public plan and a top secret “for their eyes only” brief because sharing “proprietary information” in a public forum could be “problematic.” Total hogwash. There is only one reason GM won’t let the public view detailed information about its future– it doesn’t have one. With or without a look at the fine print, the truth remains: GM’s restructuring plan as presented to Congress will never work.

Rick Wagoner lost control of General Motors this week. Forget about his title; game over for the embattled former Duke basketball wannabe. There’s a new sheriff at GM – and it’s a bunch of Wall Street guys that few on Main Street can name. It’s the hedge funds that have been acquiring GM’s bonds. So here’s how these guys will play The General to make a killing on the pending government bailout:

Detroit’s financial predicament today rests squarely on the shoulders of its executive leadership going back nearly four decades. The American auto industry failed mostly in its will to succeed in a changing business environment marked by the entrance of new competition, adoption of new technologies, and demands for greater fuel efficiency. Had Detroit taken those actions necessary to be leaders, rather than laggards, its overall situation of falling market share, reputation for poor quality (in comparison to certain foreign competitors like Toyota and Honda mostly), and weakening financials might have been avoided.

So, the Motown millionaire’s beggars’ banquet blew town, retreating from Washington’s corridors of power to their Detroit lairs to lick their wounds. To say the CEOs of Chrysler, Ford and GM were unsuccessful in their televised attempts to “liberate” $25b from the Troubled Asset Recovery Program would be like saying the Detroit Lions are struggling to get to the Superbowl. In many ways, it was over before it started. The CEOs arrived woefully unprepared, and left with admonishments to return next month after, how do I put this delicately, getting their shit together. House Speaker Nancy Pelosi and Senate Leader Harry Reid switched into CYA mode. As part of their campaign, they’ve written a letter to Detoit, telling that what needs doing the second time ’round. Having secured a copy of this missive, TTAC contacted our own Ken Elias to read between the lines on your behalf. As the automakers run out of cash, it all comes down to this.

A run on the bank. That’s what will happen as soon as Congress adjourns without a bailout plan for the Detroit 3. Hard-pressed suppliers and creditors will force GM to do what must be done: Chapter 11. I guarantee it. GM and Chrysler will sink into bankruptcy before they even think about the annual Holiday shutdown. A few Senators and hundreds of thousands of workers within America’s automotive industry don’t want to see that sad day arrive. But arrive it will. And as the Capitol Hill hearings proved beyond a shadow of a doubt, Detroit needs a thorough cleansing.

GM’s at the cliff’s edge looking deep into the chasm and sees…nothing. How pathetic. Here’s a company with $150b in annual revenues and all they can say is “give us the money or else.” How lame is that? Frankly, it speaks to the complete lack of leadership and direction at this company. GM has not advanced one shred of evidence that it knows what to do if it goes onto the government welfare roles. In fact, all we’ve heard is “more of the same” restructuring and downsizing that’s been completely ineffective to date in stemming the tide. That dog just won’t hunt. But if GM’s Board of Directors and executive managers had a clue, this is what they would do heading into the showdown with Congress…

Do we need an American automobile industry? And by American, I mean those manufacturers, suppliers, and associated vendors owned and operated by US citizens – red blooded, football-loving, meat and potato types. (Ok, that’s a stereotype, but you know who I’m talking about.) I submit that it’s in our national interest to keep it alive and moving forward. Farago disagrees completely (editorial to follow).

Here’s the money shot from GM’s quarterly filing with the SEC:

“In connection with their year-end audit of our annual financial statements, our independent auditors assess whether a statement should be included in their audit report related to the existence of substantial doubt related to our ability to continue as a going concern. If the report on our audited financial statements included such a statement, we would not be in compliance with the covenants in certain significant credit agreements, including our $4.5 billion secured revolving credit facility and $1.5 billion U.S. term loan, both of which would be callable by the lenders. Additionally, we have other significant obligations that include cross-default provisions that could be triggered by a failure to comply with those credit agreements. We would need to seek a waiver from the lenders for any covenant breaches or cross defaults, or arrange for substitute financing. There is no assurance that we could cure a default, secure a waiver or arrange substitute financing in such circumstances or that we would not incur significant costs in doing so.”

This is the big fear at GM: auditors issue a statement regarding GM’s ability to continue as a ‘going concern.’ It would start a customer-killing PR firestorm, launch a possible “run on the bank” scenario by suppliers and trigger immediate default ratings by the credit rating agencies.

Dear President-elect Obama,

Upon taking office, you will immediately face some tough decisions about the future of the government’s role in “saving” Ford, GM and Chrysler. As you know, the Detroit-based automotive industry has already bent the ears of your political colleagues, particularly Speaker Pelosi and Senate Majority leader Reid. These Democratic leaders in Congress seek membership approval to provide taxpayer dollars to prevent these automakers from impending collapse. While we respect the efforts of Congressional leadership, and we share their desire to enhance and protect America’s industrial base and employment therein, we ask that you spare a moment to listen to the opinions of people who do not share their belief that massive federal funding will achieve these goals. First, our qualifications.

Chrysler is dead. Look for a Chapter 7 filing soon; that’s a liquidation plan, not reorganization. The judge will part-out and sell ChryCo’s few valuable assets to the highest bidders. There will be no “Hail Mary” pass to General Motors, no government rescue, no money from Cerberus to keep its corpse from the grave. Yes, the mythical three-headed dog of Hades does keep souls from escaping Hell, try as they might.

Well, it’s official. The Wall Street Journal reports that GM pleaded its case to U.S. Treasury Secretary Henry Paulson. The General’s looking for a mere $10b in “continuation” money to fund its Chrysler “absorption.” That’s a nice cover story for saying that GM cannot muster any other spin on “crying uncle.” Regardless of what Hank “the Hammer” Paulson answers, it’s a safe bet that we’ll be seeing an epic amount of taxpayer money flow into the RenCen’s silos of despondency in the near future. Mark my words: at the end of this, we’ll be saying that never have so many paid so much to so few for so little.

General Motors will soon be a ward of the United States federal government. Make no mistake about it. Without some kind of massive financial injection– not a mere few billion dollars but tens of billions– there’s no real solution to the problems of GM’s legacy of epic, chronic mismanagement. We know that day of a government bailout will come-– and much sooner than even Wall Street wants to believe. In fact, it’s almost upon us.