Earlier this month, in their search for bailout bucks for Detroit, Congress caved to the President’s insistence that legislators leave the $700b Troubled Asset Relief Program (TARP) alone. Last week, Congress failed to activate Plan B: hijacking the $25b funds they’d already allocated to the Department of Energy for “retooling” loans. At the eleventh hour, President Bush said, “Oh, alright then. Let’s talk TARP.” And so Plan C: the President of The United State will outline his plan to put up to $15b in play from the TARP monies. It’s a stunning about-face, whose details will be revealed on Monday. Those are the broad strokes. Before suggesting the presidential approach to Detroit’s debacle, let’s zoom in…

Congress’ bailout bill blew-up in the Senate, not the House, which gladly offered-up your money for a faulty plan. The Senate Republicans were not happy creating a powerless “car czar” to oversee the public purse. Senator Dick Shelby was right– the toothless bill would have become an endless payout to Detroit. Senator Corker offered the United Auto Workers (UAW) a deal to make it work. UAW Boss Ron Gettelfinger passed on “parity” with the transplants, as Corker demanded in his alternative legislation. Big Ron said they’d talk about it at their next contract round, in 2011.

And there you have it: proof positive that the UAW isn’t about to make a wholesale change in how they do business. If left in the care of an enfeebled car czar, they’d go along to get along, and nothing more. And now the UAW is banking on money from the TARP as a “holdover”– so they can maintain the status quo until a Democratic President and Congress can… maintain the status quo.

And this is just the union side of the equation. For some reason, GM CEO and Chairman of the Board Rick Wagoner is still in charge of the failed American automaker. Congress has bought Wagoner’s umpteenth “turnaround plan” without question. This despite the fact that its worst case scenario is too optimistic by half and there is nothing within it– nothing– that promises a necessary product and brand-related renaissance. As long as Wagoner’s administration remains, the possibility of GM making profits is– indeed remains– minimal.

So now the ball’s in President Bush’s court. Short of letting the free market exact its final determination (an inevitable reckoning), it’s time for a tough deal. In fact, President Bush has the opportunity now to craft the deal that needs to get done, recognizing the fact that GM and Chrysler are already bankrupt.

First, the President must demand that each company puts up collateral equal or greater to the loan amount advanced. Since no commercial lender will provide funds, and the government is using our money, we want protection. Especially as $15b represents a lifeline to future funding requests, not a solution to GM and Chrysler’s fundamental problems.

This caveat would force Chrysler’s collapse. This company has no collateral of value; existing lenders already have tied that up. Either Cerberus puts something else up of value, or it doesn’t. And that means lights out for the Pentastar. That’s a good thing for taxpayers; there’s no future for Chrysler on its own. Period. And ChryCo’s cratering will help GM and Ford survive.

Second, the President must demand that the UAW immediately end the JOBS Bank (not just suspend it). The JOBS Bank language effectively forces GM (and the rest of Detroit) to pay off workers with huge termination packages to leave their jobs when plants are closed. It’s the so-called “Attrition Program” agreed to by the UAW. I’m not against providing some money when jobs are lost, but GM needs to restructure now (again). It can’t afford big payouts to let labor go.

Third, the President must insist that GM begin negotiations to restructure its balance sheet. The Commander-in-Chief can force GM to provide a go-forward balance sheet and viable operating plan– by not advancing the total funds GM needs to survive until March. He can set January 15th, a week before President Obama takes office, as a deadline.

Basically, we’re asking GM’s highly paid bankruptcy advisory team to write the Plan of Reorganization (“POR”) today (without negotiation with creditors). This POR would illustrate – in a public document – exactly how GM can become a viable company. It would let outsiders comment on its validity and believability. It will tell all the parties where they will come out in the end. And it sets the stage for President Obama and Congress to make the final decision whether it’s better for GM to go through bankruptcy or not.

Lastly, the President should place all the usual terms and conditions about executive compensation, prohibitions on golden parachutes, no mergers/acquisitions and tough GAO oversight with weekly reporting.

I hope that President Bush doesn’t punt on his responsibilities with our money. Kicking the problem down the line to the next administration is an easy solution, but not the right one. The President needs to step up and start the end of the madness. He should set the stage for a real and meaningful program for a long overdue restructuring of GM. Chrysler is already dead, so why continue the charade? Ford, well that is for later…

The bailout bill’s demise in the Senate is inspiring all kinds of unhinged commentary this morning. Even by the recently declining standards of discourse, some of the comments we’re seeing around the autoblogosphere are sublimely ridiculous. By the tone many commentators are taking you’d think the US has never overcome adversity before, and lacks the entrepreneurial vigor to survive a highly necessary reorganization and rebirth of our domestic automakers. Rather than calling on Detroit to slow down its little red love machine and find a business plan that’s gonna last, we’re hearing some of the most prominent names in the business calling for a new lender of last resort. Namely that lamest of lame ducks, President George W Bush.

Having opened the opportunity for an epic flip-flop on the use of TARP funds, W has brought Automotive News [sub] publisher and editor-in-chief Keith Crain to the mountain top, with co-author Peter Brown in tow. In a piece that puts the “bs” in subtle, Crain offers W an opportunity to rescue his DOA “L” word (legacy, you perv) by showing “leadership and statesmanship.” By reassuring Americans that we have survived worse than this and reaffirming our national commitment to the principles which made our economy great?

Of course not. Crain blames a “Senate minority” for the bill’s failure, and then admits that Corker’s plan “could be a basis for a viable industry,” but only if W makes with TARP funds first. But his argument is predicated on the assumption that, like ethanol, a Detroit bailout might be reborn in Obama.

And indeed, Obama is continuing to make noises about finding “a way to give the industry the temporary assistance it needs while demanding the long-term restructuring that is absolutely required.” Based on his “disappointment” at the failure of the bailout plan, it sounds as if he would support a Bush TARP raid for the industry. But he’s also not leading any charges on the issue, thanks to his own ambitious spending plans.

Between massive infrastructure investments, health care reform, and a homeowners assistance plan, Obama has plenty of plans for your tax dollars. Plans that he knows carry little of the baggage that an auto bailout drags around. Now wonder the Wall Street Journal reports that cooperation between Bush and Obama over TARP policy is breaking down. Furthermore, SecTreas Paulson has “indicated he wants to consult with the Obama team on any big moves, especially a draw down of the next $350 billion. Mr. Paulson doesn’t want to commit funds to a program if the new administration might later undo the effort.”

If Bush and Paulson get a go-ahead from Obama to spend TARP funds on a bailout, it would be a return to the unpopular position of giving money without real conditions.

Specifically, the blocking Senators blame the UAW for not making immediate sacrifices. The UAW is holding to its position that wages should come to parity with transplants, but not until 2011 when its current contract ends. As with two-tier wages in the 2007 contract, this gives the UAW the luxury of appearing to make concessions while protecting its longtime members and their considerable perks. It also allows the UAW to call the negotiation breakdown “a blatant attempt to make workers shoulder the lion’s share of the costs of any restructuring plan” in a prepared statement.

The fact that UAW President Ron Gettelfinger refused to even meet with Corker and the Senate Republicans severely limits any mileage the union might get out of its populist rhetoric. And proves how hard the reforms Obama calls “necessary” will be to realize.

Ultimately, this decision will come down to George W Bush– making it nearly impossible to predict an outcome. Bush had previously opposed a bailout, then opposed use of TARP funds, and is now departing from both of these positions. As a lame duck he could either stand firm on principle, or he could cave in to rescue a severely tarnished reputation.

Needless to say, I advocate that he take a moment to think about throwing away market principles in the face of a wave of self-interested doomsaying. Look at the auto industry employment numbers, and then gauge the mileage in subscribing to the “coastal conspiracy” and “civil war redux” theories. And for goodness sake, think twice about the real impact of a D3 bankruptcy on the jobs situation.

If all the necessary concessions from labor, bondholders, management and dealers were readily available, a compromise could well have been reached over the last few weeks. The desperation of the situation has been clear for all to see. Dumping money on the problem certainly won’t increase any of the stakeholders’ incentive to make painful reforms.

Meanwhile, $14b could do plenty of good mitigating the pain of a weak economy for all Americans, rather than for only the most shrill. If Detroit goes down, we can survive.

There’s still time left for the Senate Republicans to stop the insanity. The Detroit bailout plan is a hastily written piece of legislation that gives an open-ended commitment to government support of the domestic auto industry. One that makes a single individual responsible for “determin(ing) appropriate measures for assessing the progress of each eligible automobile manufacturer in transforming the plan submitted by such manufacturer to the Congress on December 2, 2008, into the long-term restructuring plan to be submitted.” And that same individual also will help negotiate a restructuring program “between the interested parties” and will then determine within a date certain whether the plans themselves lead to the expected outcome of financial viability. If not, this same individual can pull the plug by calling the loans and forcing a bankruptcy. If he or she does that, I hope they get Secret Service protection. And a Medal of Honor…

In truth, the car czar idea is patently ridiculous. One player-to-be-named-later will have the power to set the terms, negotiate the deal, and then make a final determination whether he’s done it right. Why not put Stalin in charge? This nonsense destroys the rights and interests of the parties to negotiate themselves-– or under the existing framework of the bankruptcy judicial process. Worse, there’s enormous political pressure to incorporate wacky concepts (from the Pelosi wing of the Democrat party) into the restructuring plans. We’re talking green cars, no jets, limits on exec compensation and other political aims that hamstring prudent allocations of capital.

Bad landing, wrong airport.

Other than CEO Rick Wagoner and the GM Board of Directors, the biggest stumbling block to GM’s root-and-branch restructuring remains the costs of terminating brands and dealers. GM’s latest plan to “rightsize” same is a lame attempt to pull the wool over the eyes of Congress (but not TTAC). It feebly states that GM will sell Saab and HUMMER (to whom? when? for what price?). It places Saturn in “strategic review.” Pontiac becomes a “niche brand” (as if it isn’t already a niche of nothing).

GM’s dancing around the issue: it needs a wholesale slaughter of brands and dealers, including the Buick/Pontiac/GMC “sales channel.” HUMMER, Saab, Saturn? Kill them all. Only GT can’t do it outside of bankruptcy; dealers would bury them in lawsuits from all 50 states’ franchise laws.

If Congress wants to rewrite the rules for its friends in Detroit, they should simply pass legislation that gives a one-time authority for any of The Big 2.8 to terminate brands and dealers with limited liability. The nuclear utility industry has an entire act devoted to limiting its liability in the event of catastrophe (the Price Anderson Act, passed in 1957 and renewed ever since). Why not do the same for Chrysler, Ford and GM? Just cap the amount of corporate liability in the event of franchise terminations during this restructuring period. Problem solved.

If GM really wants meaningful restructuring, it has to eliminate six of its eight brands. STAT. Focus on Chevrolet and Cadillac only. Yes a lot of dealers will disappear; some 3k or more. But it must be done and it can’t be done outside of bankruptcy. The dealers will never cooperate. It’s their livelihoods and personal assets at stake. Screw sacrifice they’ll say, we’ve already given enough.

Other than that…

Yesterday, we proposed a simpler solution. Give The Big 2.8 the bailout money they need to keep the doors open and lights on for 45 days or so. A finite amount of money, fully collateralized by assets. No risk to the taxpayers. Make these companies come up with their own plan, one that makes them viable enterprises: healthy balance sheets, limited debt and an opportunity to make profits and generate cash soon, not never. If they can’t do that outside of bankruptcy in this time period, then they’ll have to file no matter what. Put them under the Sword of Damocles.

But we’re going to add a caveat to this. There will be no additional government money. Any restructuring program must meet the tests of commercial lenders. Let the market determine whether they’ve gone far enough in restructuring, not Congress. And certainly not some “be all, know all” car czar. Let’s be sure to keep the politics out of this where we can. Otherwise it will be an endless circus. The commercial finance market will jump at an opportunity to finance a healthy automaker, perhaps with a “nudge” from Treasury.

We urge Congress to seek a “market-based” approach to solving the problems in Detroit. Any legislated attempt to loan money under conditions will certainly fail. It opens the door to political interference, and places the burden on a single individual to determine the merits of any restructuring. The horror! We say the market can function effectively if Congress lets it do so-– with a little piece of legislative help to limit liability. And a little bit of money just to get there.

The last hope. We’re making a final appeal. Senate Republicans, led by Jim Shelby (R-AL) and Bob Corker (R-TN), need to send the proposed loan program to Detroit into the dustbin of history. As constructed, the legislation represents a waste of taxpayer money. It’s a pretend piece: A bridge to nowhere. The bill’s based on the false hopes of a new car czar, entrusted to negotiate a restructuring outside of court for General Motors and Chrysler. That won’t happen-– and shouldn’t happen. Only the party of Lincoln can stop this foolishness now.

TTAC does not want Detroit to fail. (Ok, Chrysler should fail – unless its rich Daddy wants to continue their foolishness.) There are lots of good, honest people in the auto industry who have been sold out by decades of GM, Ford, and Chrysler mismanagement. Executive leadership working under a bubble of opaque glass, ignorant to the changes in the real world of auto sales.

As legions of American consumers departed for Japanese, German, and Korean iron, these Detroit managers found comfort in placing blame squarely outside of their control: foreign currency, unfair trade, health care, etc. In truth, their decisions and indecision lead to vehicles that failed to deliver the goods. Had it not been for the ascent of truck-based vehicles and cheap gas in the 1990s, Detroit would have been dead years ago.

Today, again. Rick Wagoner and his GM minions continue to claim that they were victims of circumstance, sandbagged by lousy economic conditions caused by  Wall Street’s disastrous mortgage orgy. Nothing could be further from the truth. Any student of Detroit has known for years-– and as repeatedly documented by TTAC– that GM and its cohorts have been headed for disaster for decades. The economic crisis is simply the  straw that broke the camel’s back.

Against a backdrop of soaring unemployment, Democrats in Congress decided it could not adjourn without doing something, anything, for Detroit. And so it’s created an even bigger economic disaster, lying in state for the new President. The current President doesn’t want to leave office as “the President who killed Detroit.” So it’s up to the final bastion of rationale thinking– the Senate Republicans– to kill this deeply flawed, hugely wasteful piece of legislation.

We propose something different. And simpler. Something that might satisfy all of the political demands and protect American taxpayers.

Just give GM six billion dollars and Chrysler four billion dollars. No strings attached, other than a requirement for collateral to back it up. If there’s no equity at Chrysler (there isn’t), the automaker’s private equity owners Cerberus should step up. By their own testimony, Ford doesn’t need money now. So don’t give them any.

Don’t try to craft any solution involving government terms and conditions beyond collateral. No warrants, no car czar, no “green car” requirements. And get rid of that stupid “no jet” clause. How the heck can you run a multi-national company without one or two?

Under this plan, Congress will force The Big 2.8-– and their creditors-– to craft their own reorganization now, rather than waiting for the car czar to propose one. Better, it’s all accomplished outside of court, without any political overtones. Best, it sets an immediate time limit on a resolution.

The money provided today will run out-– that’s a guaranteed fact. And then it will become Obama’s problem to decide if he wants to continue funding corporate welfare. But by then we’ll know the truth about any restructuring progress. Whether Rick Wagoner and Bob Nardelli are the men they say they are.

In the end, a straightforward, no-strings-attached loan will prove with all finality that there can be no restructuring of GM outside of court. We highly doubt that GM really understands the depth of its problems; it will refuse to take the painful but necessary medicine unless dragged kicking and screaming into bankruptcy court.It’s now owned by its creditors and the UAW, not its shareholders. Just hand them the keys.

Chrysler cannot function as an automaker going forward. Cerberus’ plan for its baby to become merely a distributor for other products-– while keeping the financing-– didn’t work. Time for liquidation.

We hope Senators Shelby and Corker read this. They understand that giving these companies funding today under the proposed legislation will become an endless money pit, with no restructuring accomplished under government purview. Not one creditor will accede to the haircuts required without compensation– from the taxpayers, not the companies. We’ll hear future requests, with half-baked restructuring plans, none of which will work.

Instead, just give these companies a lifeline today without fuss or muss, and let them make their own way out of the wilderness if they can.

And if they do come back with a restructuring program that truly works, then Congress and the new POTUS can craft a loan program with necessary government oversight. But why try and figure that out now? Someone needs to teach Congress how to negotiate. We’ve done our best.

GM’s plan to Congress for its long term financial viability results in GM being insolvent in 2012 in amounts ranging from $30-43 billion. It’s not much of  a plan for long term viability. UAW management points out that GM’s plan leaves some creditors making no concessions and correctly asks why it should re-schedule payments or make other concessions when other creditor groups make no concessions. While chapter 11 is no panacea, it is far better to fully restructure GM in chapter 11 than to support the half-baked plan now before Congress. Some of the problems with GM’s current plan…

GM  says it will negotiate with some stakeholders to reduce liabilities, and will try to conclude negotiations by March 31, 2009. The plan also requires taxpayers to give GM $10 billion before March 31, which lessens the incentives creditors have to make concessions. So, who benefits and who gets hurt under the GM plan?

— trade creditors (owed $28 billion) make no concessions, even though today their claims are worth about 20 cents on the dollar, roughly the amount at which GM’s bonds trade. The trade claims have the same value because, like bonds, they are unsecured claims and have the same level of priority. Why should the UAW retiree trust or bondholders reschedule payments when suppliers make no concessions?

— the UAW and the retiree trust make no concessions in the amount of $20 billion owed to the trust, and the GM plan is silent on any deferral of the $10 billion of payments due to the retiree trust in 2010, although it appears that re-scheduling of payments is on the table, but only if GM can present a truly viable balance sheet, which it has not yet done

— Bondholders benefit by getting current interest payments, since there is no discussion of deferring current  interest payments to GM bondholders. Does GM think labor should reduce its wages so that interest payments can be made to bondholders?

The plan indicates that bondholders are expected to convert $20-30 billion of debt into either other debt or equity in what some are calling a “distressed exchange.” No mention by GM of what happens to the remaining $23 billion of bondholder debt which will go into default unless taxpayers fund the interest payments, a waste of taxpayer money.

There should not be a partial restructuring of GM’s bond debt when it clearly is unable to support the debt or afford to pay interest on it without taxpayer support. There is no discussion of why any bondholder would convert its debt to equity when after GM’s plan is fully implemented the company will still be insolvent in 2012 by at least $30 billion.

— Under the GM plan taxpayers will be funding current payments to retirees, interest payments on debt, and payments to trade creditors/suppliers, none of which would have to be paid in a pre-negotiated chapter 11 case.

— GM seems prepared to give taxpayers “senior status,” but not a senior security interest in all of its assets, which would be junior only to the existing $6 billion of secured debt. GM’s suggestion that taxpayers should invest $18 billion as preferred stock, junior to the existing claims of retirees, suppliers and bondholders, is ridiculous.

— The GM plan envisions no significant wage concessions from the UAW, although the UAW appears ready to negotiate, assuming all other creditors come to the table and make concessions

— Under the GM plan “full labor competitiveness” is inexplicably delayed until 2012

— The GM plan is based on an unrealistic hockey stick sales projection, assuming 16 million unit sales units in 2012 , disingenuously characterized as “more typical” than lower annual sales units in the 14 million range.

— The GM plan is more focused on what it calls “liquidity” rather that profitability, and taxpayers have been denied access to detailed profit projections prepared according to generally accepted accounting principles.

— Labor and bondholders should not be expected to support GM’s current plan which in 2012 leaves GM still unprofitable, still insolvent, and still unable to issue investment grade debt

GM Opposes  an Expedited Chapter 11 reorganization

GM opposes chapter 11 reorganization for five reasons: too much delay, too many stakeholders, high administrative costs, possible lack of chapter 11 (DIP) funding, and lost sales because of the stigma attached to chapter 11.

— Delay. A pre-negotiated chapter 11 reorganization can be completed before March 31, 2009, the date GM envisions for completing its partial out of court restructuring. Specific provisions of the Bankruptcy Code authorize expedited procedures for voting on and approval of a chapter 11 reorganization plan. By assigning multiple judges to handle different aspects of a GM reorganization case, I believe GM could get approval of its plan in 100 days.

— Too many stakeholders. In chapter 11 the vote of the majority of a class of creditors binds the minority if the majority holds at least 2/3rds of the total claims in the class. For example, assuming GM has $40 billion of short and long term debt which is placed in one class, holders of $26.8 billion of the debt can bind the minority as long as those holders also constitute a majority of the bondholders actually voting on the plan.

Because GM’s bonds are likely to be concentrated in the hands of distressed debt investors, holdouts are not likely to be able to block approval of a reorganization plan. Voting in a chapter 11 case will be expedited. Outside of bankruptcy the problem caused by bondholders who do not cooperate with GM will be greater because GM has no way to force dissenting bondholders to accept its restructuring plan.

— Administrative costs. The legal and accounting work needed to do an out of court restructuring and a bond exchange offer is similar in cost to what is incurred in a chapter 11 case. However, chapter 11 gives the debtor the right to initiate proceedings to reject collective bargaining agreements or to reduce retiree benefits, and the cost of those proceedings would be higher because those legal rights only exist in chapter 11.

If GM can negotiate concessions from the UAW without the threat of a court approved rejection of the labor agreements, and get all other creditor groups to make meaningful concessions, then an out-of-court restructuring may work. Any increase in administrative costs of chapter 11 reorganization will be offset by the fact that once GM is in chapter 11 it does not have to use cash to pay dealer termination claims or other unsecured claims.

— Possible lack of funding. Elsewhere we have suggested that the government guarantee a DIP loan to GM made by a consortium of lenders with experience lending to and monitoring chapter 11 debtors. In chapter 11 GM will be able to conserve cash payments it otherwise would have to make to bondholders, suppliers, the UAW and retirees. In addition, the bankruptcy court can give “super-priority” to any government loan, which would make the loan junior only to GM’s existing $6 billion secured debt.

This is better taxpayer protection than the vague “senior status” proposed by GM. GM needs government financing, whether in or out of bankruptcy, so this risk is essentially identical and is not a reason to avoid chapter 11.

–Stigma attached to chapter 11. After GM’s plan is fully implemented GM is still insolvent by at least $30 billion, hardly reassuring to car buyers. GM could complete its chapter 11 reorganization in 100 days and come out of chapter 11 with a totally restructured balance sheet that really would reassure customers. GM’s current plan to viability is not reassuring to consumers because it does not return GM to profitability.

Deleveraging GM’s balance sheet.

GM proposes to reduce its debt from $62 billion to $30 billion, a reduction of only  $30 billion, which leaves GM insolvent (negative book equity) by at least $30 billion. GM proposes that there be no reduction of the $28 billion of debt owed to suppliers, and has missed an opportunity to further reduce its bondholder debt. GM should disclose to taxpayers the amounts owed to each supplier so that taxpayers can make their own judgment about who deserves to be paid.

GM also needs to disclose the names of its 100 largest bondholders. No doubt that the UAW will insist on receiving this information and demand that suppliers make concessions and bondholders make more concessions before the UAW even considers temporary wage reductions.

If GM is going to make payments to truly critical suppliers, it should at least insist that suppliers extend new trade credit to GM in the same amount as any payments made on the old claims.

GM’s bond debt of $40 billion needs to be completely converted to equity and GM needs to announce that it is ceasing interest payments on the debt, acknowledging that taxpayers should not be asked to fund interest payments. GM needs to convert $14 billion of supplier claims to equity. By further reducing existing unsecured claims and debt GM can create a balance sheet in which it is solvent.

Lack of taxpayer protection outside of a chapter 11 case

GM proposes to give taxpayer loans “senior status”, which raises the question: senior to what? Taxpayers need a security interest in all of GM’s assets, not an amorphous senior status. Making taxpayer loans immediately “callable” if plan benchmarks are not met is meaningless because GM wants $10 billion in the next 3 months, well before GM’s suggested deadline of March 31 , 2009 for obtaining concessions from bondholders, the UAW and retirees. Once the taxpayer loans are made the other parties have no incentive to make concessions.

In chapter 11 bondholders have huge incentives to act quickly to support and expedite a GM reorganization. Obviously, to de-leverage its balance sheet (i.e. to reduce its  debt) GM is going to have to convert debt into equity, most likely common shares. Because the new common shares will have a value based on GM’s restructured balance sheet, distressed debt investors will support a debt conversion that enhances the future going concern value of GM. Converting debt to equity in a chapter 11 case is an efficient way for distressed debt investors to convert their debt holdings into cash by selling the common stock they are likely to receive under GM’s chapter 11 plan.

A 100-day plan for a GM chapter 11 reorganization.

December 16,2008  GM presents its detailed financial projections to bondholders, suppliers, the UAW and the retiree trust. Bondholders and suppliers form a joint committee of creditors holding the 20 largest claims and the committee engages legal counsel and restructuring advisors to assist the committee in negotiating with GM. The UAW and the trustee representatives of the retiree trust form their own committee and retain advisors. GM begins daily meeting with the Committees and shares financial information, projections and other data needed by the Committees to represent their constituents

January 2, 2009  Congress announces agreement in principle to guarantee a $20 billion secured DIP loan to GM, subject to stringent conditions and the written agreement of the two Committees to support GM’s revised restructuring plan.

January 5  Treasury/Commerce Department convenes a meeting of the Committees and of creditors, and GM presents detailed term sheets for an expedited restructuring in chapter 11.

January 15  Treasury completes drafts of financing documents for GM to be implemented in GM’s chapter 11 reorganization, subject to review by GM and the Committees.

January 25  After receiving comments, the secured DIP financing arrangements for GM are fully documented, subject to the consent of the two Committees and the existing secured creditor.

January 31  Committees complete negotiations on the detailed term sheets to be implemented in a chapter 11 reorganization. Individual committee members agree in writing to support the plan after it is filed.

February 5  GM files its pre-negotiated chapter 11 case, including a detailed plan of reorganization and a disclosure statement which will include financial projections.

The first draw  of $5 billion on the DIP loan is approved on Day 1. The two Committees are approved as the official committees in GM’s chapter 11 reorganization.

On Day 1  The arrangements needed to guarantee or pay customer warranty claims in the ordinary course of business are presented to the court and approved. The DIP loan has a specific carve out of $2 billion to permit immediate use of taxpayer money for payment of consumer warranty claims. GM agrees to honor all warranty claims and the court orders GM to honor warranty claims.  GM and the Committees release a schedule showing the timeline for completion of the chapter 11 case no later than March 31, 2009

February 15  Court approves the GM documents needed to solicit votes on the plan from bondholders, trade creditors/suppliers, the UAW and the retiree trust. The plan incorporates any UAW concessions and any changes in payments to the retiree trust. The two Committees and each committee member agree to vote for the plan and recommend the plan to other creditors.

February 17  Court approves the balance ($15 billion) of DIP financing, and preliminary approval of an additional $20 billion line of credit for post-chapter 11 financing.

The provisions for continued government financing of GM are also included in the plan and will be implemented once the plan is approved. In total, $40 billion of loans or lines of credit are available to GM.

February 28  Votes on the GM plan are counted and the plan is approved.

March 10  Court hearing held to approve the GM reorganization plan.

March 26  GM reorganization plan is implemented and initial distributions begin to creditors holding undisputed claims. GM distributes warrants to the US Treasury as compensation for making the DIP loan and extending the line of credit.

After the plan is implemented the court will retain jurisdiction to rule on disputed claims, including any dealer termination claims, as well as retain the authority to decide a host of other matters and disputes. Because the plan will have a reserve that takes into account disputed claims, distributions to creditors will be made in one or more distributions as disputed claims are resolved.

By using expedited chapter 11 procedures GM can bind all stakeholders, including holdouts that object to the plan, holdout for preferential treatment, or do not bother to vote. GM can come out of chapter 11 as a solvent company, a far better result than what is proposed under GM’s current plan. Jobs at a properly restructured GM will be secure jobs. Government funding of GM will be better protected in chapter 11, and the refinancing of  government loans is more likely if GM is solvent and truly viable in the long term.

Jalopnik’s Editor and I have had some major differences of opinion. Ray Wert recently opined that a Chrysler-GM merger made good business sense. I disagreed. When Jalopnik sold “Save GM” t-shirts and claimed it was ironic, I said it was absurd. Today, Wert posted an editorial entitled “The Case for GM CEO Rick Wagoner.” Again, I disagree. The rant is deeply misguided, the logic and conclusions just plain wrong. And in a twist of [yet more] unintended irony, the editorial stinks of the sloth and corner-cutting that’s brought GM to its knees.

“While we’ve been a vocal critic [sic] of GM’s glacial restructuring effort,” Wert writes. “We’ve got to say the automaker probably should stick with the girl they brought with ’em to the ball — no matter how ugly.” This is no argument at all– unless you find the admonition against ‘changing horses mid-stream’ inherently compelling. General Motors has followed this non-strategy– stick with the same tired brands, the same poor products and planning, and the same incompetent management– for the past four decades. To no avail.

So what’s the justification, in Wert’s mind, for backing a loser? “Mostly because we can’t name anyone better who’d understand the product and the bureaucracy of the General.” Obviously, Wert’s inability to name a suitable replacement for GM CEO RIck Wagoner doesn’t preclude the possibility of his or her existence. In fact, it underscores the paucity of imagination suffered by the pro-Big 3 establishment collectively; demonstrating General Motors’ longstanding assumption that if they can’t do it, it’s not possible. Remember when GM said it was nearly impossible to make money on small cars?

Is it really that hard to find an executive that meets Wert’s supposed requirements, understanding GM’s product and bureaucracy? Even I understand GM’s products, and I have no managerial skills above the level of lemonade stand. As for grokking the complexity of GM’s bureaucracy, this is a double-edged sword. Any executive that comes from within GM doesn’t just understand the bureaucracy– they are the bureaucracy. While the FBI recruits mobsters to act as informants because they understand the mafia, it doesn’t recruit mobsters to work as actual FBI agents.

Wert opposes bringing in someone outside of GM because “… to bring in someone completely new to figure out that bureaucracy takes time GM just doesn’t have without tens of billions more in public monies.” But that’s the real issue here. This is public money. And while the taxpayers don’t get stock certificates (perhaps they should), why would we want the same management that carelessly squandered billions of dollars of GM’s privately-raised money? We have no reason to believe that Rick Wagoner’s cronies will be more careful now than they were before.

As for figuring-out bureaucracy, a new CEO doesn’t need immediately understanding of the company’s bureaucracy. They need to keep the company running more than the “two months” that Wert over-pessimistically prognosticates GM has left.

The “better scheme” that Mr. Wert then proffers reads like a sort of class president campaign flyer. “What this automaker needs … [is] an external force moving the current leadership to change quickly.” They also need 1000 mile-per-gallon sports cars. Neither is possible. Neither is orbiting possible. General Motors does not change quickly, and Rick Wagoner has never shown any proclivity for the kind of fast action the company so desperately needs. Hanging-up the phone on Carlos Ghosn doesn’t count as fast business action any more than driving to DC.

Not all that surprisingly, Mr. Wert’s pipe dream plan of adding yet another layer of bureaucracy to General Motors isn’t even internally consistent. Too little oversight of Wagoner, and we’re at the status quo, with public funding down the drain. If a board of independent assessors is going to scrutinize Wagoner’s every decision, why have him there at all? You lose the purported benefits of Wagoner “knowing his way around GM’s bureaucracy.” And in so doing, you actually amplify GM’s traditional problems.

I certainly don’t think Red Ink deserves all the blame for decades of chronic mismanagement at General Motors. But he’s the man in charge of the firm now. The executive who’s been CEO for eight and a half years. Prior to that, since 1992, Wagoner  high level executive positions. So he deserve plenty of blame. And he can no doubt survive taking one for the team with the small fortune he’s banked over the past 16 years.

It’s intriguing that GM posted a mea culpa to the Facts and Fiction site a few days ago. But absent major action, it’s meaningless. Mr. Wert can’t sprinkle their support for the status quo with a handful of criticisms and think it properly qualifies his opinions; that is the very definition of an apologist.

The “Case for Rick Wagoner” ignores reality. GM’s CEO is a failure. What’s more, he’s the public face of a company that needs a complete change of direction AND identity. General Motors must ditch Wagoner to tell all the disenchanted former GM owners and all those opposing the bailout that things really are going to be different. For GM, keeping Wagoner would insist on the status quo. For Mr. Wert’s part, he fills the role of accomplice journalist fairly well.

In the House Financial Services Committee hearings on loans to the auto industry, Rep. Maxine Waters hectored the CEOs of Chrysler, Ford and GM. The California democrat attacked the execs on behalf of “small” independent auto dealers on “Main Street.” “Is there a commitment by any of you to give support to these small independent dealerships that include a lot of minority dealerships that are going to close down?” Never mind how they replied. Implied but not stated: The Big Three are guilty of, at best, racial insensitivity. At worst, racism. It’s untrue, unfair and outrageous.

Rep. Waters is upset that GMAC, Ford Credit and Chrysler Financial Services are calling in notes– as opposed to perpetually extending credit– to minority car dealers. In the interests of fairness, let’s keep in mind that this is the same Congresswoman who, in 2003, informed us, “We do not have a crisis at Freddie Mac, and in particular at Fannie Mae.” So no surprise that Waters’ tirade about the domestics’ dealer reduction and consolidation plans misses the entire purpose of exercise: reducing surplus dealers to survive.

Once upon a time, Chrysler, Ford and GM owned the U.S. market. There were domestic dealerships and then there was… nothing. Minority dealer programs were first initiated by Henry Ford II because he thought it was good business and the right thing to do, not because of pressure from activists. Be that as it may, special considerations were extended to minorities. Through financial incentives and active recruitment, they were encouraged to own stores and train members of their community.

That was then. This is now. As the domestics’ market share has steadily decreased, the domestics’ dealer count became a gigantic anchor tied around their collective necks.

It costs a lot of money to supply and support all those dealers. Inter-dealer competition drives down average transaction prices, yielding lower average vehicle sales per dealer. And pandering to the plethora of stores has lead to the brand-diluting practice known as “badge engineering” resulting in yet further intra-store competition.

For example, at the moment, GM’s eight domestic brands account for 24 percent of the U.S. market. The General has well over 6k dealers. That’s down from the nearly 8k dealers back when GM’s brand portfolio accounted for over 35 percent of the U.S. market. But it’s still well over 4k more dealers than Toyota.

There is an upside to the domestics’ ubiquity: they are far better represented in rural areas and small towns than Toyota, Nissan, Honda, Hyundai and the rest of their transplanted competition.

Reading between the lines of Ford CEO Alan Mulally and GM CEO Rick Wagoner’s testimony in the hearings, both domestics [rightly] view their small town dealers as a strategic advantage. During his testimony, Mulally referred to Ford’s small town dealers: “We are woven into the fabric of every community that relies on our cars and trucks and the jobs our company supports.”

All of which means that Chrysler, Ford and GM are closing/losing proportionally more dealers in big cities than smaller cities and towns. Ford CEO Alan Mulally’s prepared remarks to Congress admitted as much, revealing that Ford has reduced dealers by a greater percentage in “large markets.”

There is no getting around the fact that the vast majority of minority-owned car dealers operate within large, urban markets. While there’s no reason to believe that minority-owned dealers are any less well-managed than other dealers, and many are indeed profitable, there’s also no reason to suggest that the domestics are targeting minority-owned dealers for closure. They’re simply in the wrong place at the wrong time.

To satisfy Rep. Waters’ desire to protect African-American dealers, to exempt them from the inevitable cull, Chrysler, Ford and GM would have to discriminate against both rural dealers and well-managed non-minority-owned urban dealers.

Of course, that’s exactly what Rep. Waters wants. She wants to make any loans to the domestic automakers contingent on their continued support of dealers that are part of their problems in the first place. “Do you believe that if we are to rescue these big automobile manufacturers we should insist or include in our language support for the small independent dealers?”

If there was a time when the automakers could afford to cater to the concept of political correctness, that time is past. In their fight for survival, to meet their obligation to return taxpayers’ money, the domestics’ must ruthlessly “right size” their operations. The bottom line is all.

The Detroit automakers are among the biggest private employers of minorities in the country. A larger number of minorities in the auto industry work within the domestics’ organizations than without. Rep. Waters needs to understand that if the Detroit automakers don’t consolidate their dealer networks, the automakers will not survive and a lot more African-Americans, Hispanics and other minorities will lose their jobs.

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.

Detroit doesn’t need three companies. It needs two: GM and Ford. Other than job subsidy, Chrysler has no reason to continue. Some 80 percent of its revenues come from the crowded and competitive North American market; not one of its products could be considered “leading” by any metric. Its vehicle quality– mostly lack thereof–is legendary. Worse, the company has no future products that will change its current trajectory into liquidation.

Why is the U.S. taxpayer on the hook for Chrysler? Unlike GM or Ford, Chrysler’s rich owner, a private equity fund with multi-billions in private capital available, has $7b to invest in its portfolio company. And the rest. Here’s the petard by which Cerberus should be hoisted. John Snow, Cerberus’ chairman, made these comments (excerpted with highlights) in Detroit in July 2007, shortly after the acquisition of Chrysler:

“Cerberus is one of the world’s leading private investment firms with approximately $26 billion under management. Our investors are primarily made up of pension plans, charitable endowments, insurance companies and other long-term savings and retirement programs, including many state pension funds.

Cerberus fixes up underperforming companies and rebuilds them. Our entire focus is on improving the performance of the companies we buy. We bring real operational expertise to bear on our investments, with a cadre of over 150 seasoned, senior-level proven executives who are able to provide a wealth of advice, as well as supplement management teams to produce superior results. We do this patiently, taking a long-term view on our investments. Unlike many purely private equity firms, Cerberus does not invest with an exit strategy in mind. We invest with a “find, fix and hold” strategy.

The prescription we offer is patient capital. Because our investors – a broad base that includes pension funds, state workers’ programs, and private individuals – have a long investment horizon, we can afford to have the long view…to do things right.

For a starved enterprise with a sound strategy, we can offer much needed investment in products and people, freeing captured value. We are able to inject equity directly, and also efficiently raise capital in the debt markets.

Over twenty-five years ago, when Chrysler faced bankruptcy, it turned to the United States government for assistance. Today, Chrysler again faces new financial challenges. But it is private investment stepping in to inject much needed support. Now, Cerberus has the opportunity to use the tremendous financial innovation of private investment to turn Chrysler around, to restore it to financial success, and to help it be a continuing source of good jobs for many Americans, as well as great products for American consumers.

Cerberus should be responsible for saving its investment in Chrysler. Period. Congress doesn’t see want to see union workers out in the cold and doesn’t want to pick winners and losers among the auto makers. So Chrysler gets dollars now too. Too bad for the taxpayers, but it’s the wrong decision Ms. Pelosi. Chrysler will only come back for more. There’s no way that $7b plus Section 136 billions (that’s the Energy Department program for fuel efficiency technology) gets this company to a profitable future. That takes years, not months, and a miracle that the public will find sudden virtue in the Chrysler badges. Are you outraged yet?

GM gets cash now, maybe $10b, to keep the lights on until March. And we hope that’s first priority funds, backed-up by every single un-hocked asset that GM has left. If Congress has real guts, they’ll tell GM to come back with a program, and not a plan, before March 31st. This program should look like a pre-packaged bankruptcy, with all the agreements in place from the creditors and the unions. But once the government opens its coffers, none of the creditors or the unions will be willing to take meaningful haircuts. They don’t need to– the government blinked first and will do so again. Why give now?

As for Ford, let’s face facts, Alan Mulally was only there to show support. He doesn’t want GM going into bankruptcy since Ford would go over the edge as suppliers fail. But with an assurance that funds will be available for The General, he can now rest at night as his suppliers can remain in business. But I’m sure he wished Congress would let Chrysler go down, he’d pick up a big chunk of their truck business sales– enough to alleviate his needs for future borrowings.

Pressed by time and rising unemployment. Congress took the easy way out. Ok, we get to watch the drama unfold this winter. Our job will be to continue leading the charge for meaningful restructuring at GM. We’ll root for Alan Mulally to accelerate Ford’s restructuring. And we’ll pray that Congress doesn’t advance another dime to Chrysler.

If there is one man responsible for GM’s successful semi-suckle on Uncle Sam’s teat, it’s Steve Harris. I reckon GM’s PR mastermind moved the Congressional bailout hearings from the beginning of the week to the end. Tuesday’s catastrophic new vehicle sales numbers highlighted the fact that SOMETHING HAD TO BE DONE. Friday’s unemployment stats added the critical word NOW. Once Congress convinced itself that it could convince the American public that really bad shit was about to go down, the bailout was a done deal. In truth, it’s just the start. Harris knows it, you know it, and the American people know it.

A recent CNNMoney poll revealed an enormous gap between voters who don’t support the Detroit bailout (61 percent) and those who don’t support the Detroit bailout and think it won’t help the U.S. economy anyway (70 percent). In this latter assessment, for once, common sense prevailed. If $700b to the smartest minds on Wall Street didn’t stop the recession, why would handing over less than a tenth of that to a troika of failed companies have a salutatory effect?

I choose my words carefully. Despite The Big 2.8 and our (their?) elected representative’s concerted and sustained effort to make Motown a synonym for domestic automobile manufacture, the average Jorge and Juanita knows the difference between Chrysler, Ford and GM and “the American automobile industry.” They understand that they have alternatives. Hell, they like the alternatives. They bought the alternatives. And no one’s threatening to take those cars away. Which frees them to ask the obvious, inescapable question: “where’s MY bailout?”

Considering the source of Motown’s collective “bridge loan,” this IS their bailout. And if taxpayers aren’t happy about the tens of billions of dollars heading for The Big 2.8’s coffers now, just wait until March, when Detroit’s begging bowl brigade descends on DC for Round Three. The chance of them getting a second bite at the multi-billion dollar proverbial cherry grows dimmer by the day.

In their search for survival at any cost, Motown’s mavens have maneuvered themselves into a lose – lose situation.

For one thing, either the economy will be in a severe recession/depression by March or it won’t. If it is… see? The Detroit bailout didn’t work. Fairly or not, if the industry’s prospects still suck, Congress will have little luck trying to sell the electorate on the idea that the bailout was a “success” that deserves repetition. If Detroit’s prospects suck even more than before– a downgrade that occurred during the two-week bailout-begging interregnum– the pro-bailout position will grow even less tenable.

At that point, by March, bailout fatigue will be terminal. Voters will realize that this Detroit bailout thing was never about “us.” It was always about THEM. And sorry guys, you had your go. Sink or swim. We’re floundering in our own sea of troubles.

If, however, the U.S. economy is NOT any worse than it is now, the argument underpinning the bailout ALSO loses justification. Once again, the feds bailed someone out and… nothing happened. American voters aren’t like OCD sufferers constantly checking to make sure the gas is off. The fact that a cataclysmic event didn’t occur isn’t proof that Uncle Sam was right to devote his time and our money to making sure it didn’t happen. Triple negative aside, what the Hell was THAT all about? I’m not paying for THAT again!

If voters are P.O.ed that Wall Street “squandered” their $700b, how do you think they’ll feel about Chrysler, Ford and GM’s “progress” over the next two months? Let’s face it: The Big 2.8’s sales will continue to fall. Their share of the shrinking U.S. market will continue to erode. Union concessions, debt-for-equity swaps and (God forbid) management changes will do nothing to staunch the flow of red ink, or remove the big fat “L” tattooed on Motown’s collective forehead. No matter what they do or don’t do, this bailout brands them as losers; now and into the future.

To counteract this cancerous concept, GM PR will spend the next couple of months spinning their [same old] turnaround story. Ford will continue to trot-out their entirely disingenuous “What me worry?” insouciance. Chrysler? Fuhgeddaboutit. They’re already dead. Come March, they’ll just be deaderer. Maybe even officially.

There’s your wild card. On one hand, the remaining domestics could point to a Chrysler collapse as a cautionary tale. Fork over more money or stick a fork in us. Your choice. On the other hand, Chrysler’s extinction could provide a compelling argument for a GM (and thus Ford) Chapter 11 reorganization. See what happens when you try to bailout a lost cause? Abandon all hope of a non-C11 turnaround ye who enter these congressional halls.

And that’s how this will go down. Next week’s bailout billions will be the only pre-C11 money for Chrysler, Ford and GM. Anything after this will be a debtor-in-possession deal. Bankruptcy isn’t just the right thing for these automakers; it’s the only thing. Even Steve Harris knows that. And if he doesn’t, God help Detroit.

Between 1848 and 1852 telegraph line miles in the US increased by more than 1000 percent. By 1860, most of the companies that laid those lines were gone. The telegraph did not disappear, but the market for cable unraveled. Now that the CEOs of GM, Chrysler and Ford have sent a collective SOS to Congress, its relevant to step back and look not at the now, but the whole. The cycle’s called boom-bubble-bust. Not, bailout. Put another way, what kind of market does Detroit expect to find on the other end of their bridge loans?

As I’ve argued here before, this decade’s early average of 16.9m new vehicles sold per year was the result of cheap and easy credit. From 2001 to 2003, the Federal Reserve cut the funds rate from 3.5 percent to one percent. The lowest since the 1950s. Low-cost, low-security loans flooded the marketplace, inflating the housing market like a rented bouncy house. The automobile business poached off the same line of credit.

For most of the 00s, credit flowed like champagne at a Ritz reception. The car buying climate was the best it had ever been in history. Combined with relatively inexpensive gasoline, the market for cars and trucks grew to full bloom.

Between 2000 and 2006, the number of licensed drivers grew by 1.1 percent.  Car sales went up six percent over the same period, outpacing anyone’s expectations. In 1998, there were about 12m more vehicles than drivers. In 2006, we bought 34m extras. During this same period, median household income, adjusted for inflation, inched up only three percent.

So, the population didn’t boom and there wasn’t a huge influx of disposable income. During  the first half of this decade, people were not picking-up new rides based on need. That’s called a bubble, as in dot-com bubble or real estate bubble or any of a number of other past pop hits. Yes, there’s always a pop.

“We had above-trend years, some of which was caused by an incredible growth in household net wealth that later we found wasn’t real,” George Pipas, director of sales analysis and reporting for Ford Motor told BusinessWeek.

Bob Schnorbus, chief economist with J.D. Power & Associates added, “It’s going to take us many years to get back to a trend level of sales, let alone the levels you might hope to see.”

The boom-bubble-bust cycle is actually pretty common. It afflicted the telegraph industry, railroads, baseball cards. It’s surprising more auto industry executives didn’t see it coming-– or at least acknowledge its arrival. Even ultra-conservative Toyota ramped-up truck capacity as the bottom was falling out of the market.  Still, as long-time TTAC readers know, this downturn isn’t some kind of alien invasion. Lots of people shouted duck and cover.

Michael Mandel, at BusinessWeek, reported on the bubble in 2004. He reminds us on his blog, “Moreover, I also noted that the popping of the auto bubble could have harsher economic consequences than the end of the widely discussed housing bubble.”

Demand for all vehicles has contracted greatly, worldwide, in the last quarter. Current numbers are almost certainly an extreme. To where, exactly, the market may bounce back is not clear. A rough consensus of forcasters puts us at 16 million vehicles by 2012. Maybe.

That leaves the U.S. with excess auto production capacity. It’s that excess capacity they’re asking Congress to prop-up.

It can’t be sustained.  A third of the auto industry workers across the country are stuck in a Warner Bros. cartoon. The floor’s been blown out– they just haven’t fallen just yet.

In the end, bailing-out Detroit isn’t so much the issue. What is the market going to look like for the next handful of years? Are GM, Ford and Chrysler prepared for it? Are they, in fact, able to turn, flex and shift with the economy? A market becomes more competitive as it shrinks.

We didn’t bailout the hat-blocking industry back in 1960. There wasn’t much of a point. The market changed. The car market isn’t evaporating, but changes are in the works. If people’s tastes turn resolutely to more efficient vehicles, if people hang on to their iron a lot longer to avoid a financial inquisition (and resulting interest), if people flat-out can’t get a loan and decide to take the bike or bus (transit ridership is up 5.1 percent for the year), then money from Congress is feeding a ghost.

Western Union is still around. They don’t send telegrams. Bubbles can’t be re-blown.

As yesterday’s Senate hearings wound down, it was hard not to be impressed with how pragmatic the conversation had become. By DC standards, at any rate. But any hope that the second day of testimony would build on the previous day’s momentum was misguided. Far from picking up on the previous day’s progress, the House Financial Services Committee testimony and questioning returned the conversation to step one, in a flurry of irrelevant posturing and evasive non-answers. Backsliding and tangential wanderings notwithstanding, we did learn a little more from today’s hearings.

When Rep Barney Frank gaveled the House Financial Services Committee to order, he began by noting that consensus that had been reached on the need for reorganization, changes in product mix and union concessions. This positive start was followed by immediate disappointment. Frank spent the rest of his opening statement explaining that bankruptcy wasn’t an option, and that the financial bailout made it somehow morally impossible to turn Detroit down.

Following Frank’s opening salvo, Pennsylvania Democrat Paul Kanjorski highlighted Moody’s Money Man Mark Zandy’s estimate of a $75b-$125b total bailout price tag. “We need a solution, not a first payment,” Kanjorski said. He matched Frank rhetoric for rhetoric: a Detroit bailout would bring lines of businesses to DC’s demanding the same congressional favors. The divide between the speakers– from members of the same party, no less– showed just the distance traveled from yesterday’s apparent consensus.

Not that the witnesses were worried about the re-do. Rather than preparing new statements reflecting the previous day’s debates, all three executives and their UAW compadre recycled the exact same statements they’d made before the Senate the day previous. The folksy one-liners, such as Mullaly’s invitation to “come over and kick the tires” and Gettelfinger’s “bridge to a brighter future” bon mot, were repeated with the same insincerity.

But why would the supplicants remind the lower house of congress that their more distinguished colleagues had all but damned Detroit to a four-month crash reorganization? By returning to their opening bid, they allowed the committee members to break the discursive trajectory, and head in their most favored directions. This being the house of representatives, the oportunity was not ignored.

A particularly egregious example: the opening statement by Rep Donald Manzullo (R-IL). His suggestion that automaker plans should include a request for an auto demand stimulus would do nothing to address the core issues: short-term cash infusion and long-term reorganization. Luckily, his remarks were easy to ignore, thanks to his insistence that workers in his district built “the world’s finest compact autos, the Caliber, Patriot and Compass.”

Rep Ron Klein (D-FLA) raised the specter of American Leyland, arguing that research and development for The Big 2.8 should be brought “physically under one roof,” so the American taxpayer would “understand that they were getting something tangible.” Of course, rather than referencing the failed British state conglomerate, Klein introduced his proposal as Ye Olde Manhattan Project. Knowing it would never happen, the plan was enthusiastically endorsed by all three CEOs. GM’s Wagoner insisted that this kind of collaboration and government support is “why the leaders in battery technology are in Japan and Korea.”

On a more substantive front, several representatives were less-than-enthusiastic about GMAC and Chrysler Financial’s plans to attain bank holding company status to “liberate” Troubled Asset Relief (TARP) funds. As we’ve pointed out previously, Detroit has largely survived thus far by creating a “subprime auto loan” market which is no longer sustainable. Yes, well, Toyota and Volkswagen have lenders with bank status, so these concerns  disappeared in another blinding flash of relativism.

But for every Spencer Bachus and Barney Frank arguing for expediting bank status, there was a Manzullo saying “you’re there to make cars, not run a banking operation.”

Rep Thaddeus McCotter  made a run at the Bob Corker award, by proclaiming a “solomonic” [sic] compromise. Unlike Corker’s far-reaching, pragmatic proposal, McCotter simply suggested splitting the expense between TARP and the section 136 (D.O.E. retooling) money.

The man the DetN likened to Winston Churchill (although they don’t share an antipathy to passive construction and misplaced prepositions) pronounced that “opposition in Congress is not to the idea of helping the automakers but rather to where the money would come from.”

The fact that only $7b of the 136 money is currently available didn’t give McCotter pause. Nor will it stop Congress. In an earlier exchange, Frank swept aside concerns that rash action on debotr seniority could undermine the entire basis of America’s credit system. “We wrote the bankruptcy laws,” Frank snapped. “We can change them.”

Probably the only common thread from yesterday’s hearing was a deep contempt for Chrysler. At this point it seems fair to stick a fork in a certain well-cooked three-headed dog. Nardelli faced yet more contempt on the “if it’s such a great plan why don’t you get your Mr. Moneybags owners to put up the damn money?” front. His answer, “they haven’t shared that with me,” convinced no one.

Rep Kanjorski got all three failed automakers to agree that they could survive 90 days on $14b worth of “bridge bridge” loans, with Chrysler getting $4b, GM getting $10b and Ford getting nothing. This will allow a government brokered agreement. The Congress recognized that extracting the major concessions needed from all the automakers’ stakeholders (where did I put my Buffy?) to create a mega-bailout ain’tgonnahappen.com.

Expect these funds to be appropriated fairly quickly, with a government oversight board assigned to guiding major reforms. Based on the evidence of today’s hearing, there are no guarantees that a coherent vision for the industry will emerge in only three months. And so it goes.

The tone at today’s nearly six-hour congressional hearing on the auto industry bailout was markedly different than the now-infamous hearings of 11/18. Last time ’round, the automakers thought they were flying walking into a bailout-friendly environment, and maintained their PR-fluffed facade of a few good companies who had fallen on hard times and needed a hand to reach a glorious, fuel-efficient future. And though several representatives laid into the CEOs and their companies, those bashes were little more than populist sound and fury, signifying nothing. Today’s hearing was by no means devoid of politicking or disingenuousness, but a new sense of urgency was palpable. And for good reason. With Senators still far from a consensus, the automakers and their sidekicks had to abandon their long-held preferences in favor of the best available outcome. After all, saying “bankruptcy is not an option” only works when everyone agrees with you.

The seeds of an eventual outcome were sown by the first witness. GAO Comptroller General Gene Dodaro testified that collateral and an oversight board would be necessary in any publicly-funded outcome. Dodaro agreed with Chairman Chris Dodd (D-CT) that there was nothing in the Troubled Asset Relief Program (TARP) specifically preventing a manufacturing bailout. What’s more, the Federal Reserve has the authority to issue loans

Nardelli, Mulally and Wagoner must have felt considerable relief. Straight out of the gate, the question “if” was conspicuous by its absence. All conversation centered on “how.” In later testimony, all three CEOs agreed to any form of oversight the government wanted to impose short of a 350 lbs. minder. On the table: a 1979-Chrysler-style board or a single “car czar,” as suggested by Sen Chuck Schumer (D-NY). Yeah, sure, whatever.

And then the issue of collateral reared its ugly head. As in “what can you give us if we give you $34b?” The issue was discussed at great not to say interminable length. As the scope of Detroit’s indebtedness was examined, it became clear that the auto execs couldn’t promise anything more than some level of debt seniority.

Since everyone in the hearing room had agreed in principle to a government oversight body, the questions soon turned to restructuring and long-term viability.

Chrysler was treated to a withering analysis by (among others) Sen Bob Corker. The Tennessee republican pointed out that part of Chrysler’s viability plan depended on “getting married” to some other firm. Though Nardelli insisted that this meant getting contract work building Routans and Titans, Corker dismissed the equivocation saying “nobody alive thinks Chrysler is viable on its own.” He noted ChryCo is a “portfolio company” in a private equity fund that refuses to rescue it. This highly necessary statement of the obvious eventually brought back discussion of a possible GM-Chrysler “merger.”

Nardelli jumped on this. He trumpeted the fact that any such a merger would save $10b to $20b per year. Wagoner agreed that savings were there, but said that short-term cash flow needs had taken priority over the merger. When asked if they would support a merger if it was a condition of loans, Nardelli said that even though his job would be “the first to go,” he was willing to make that sacrifice to save the company.

This unexpected display of honor was a subtle but powerful tipping point in the proceedings. It was easily the most public display of vulnerability by any of the executives. For the first time, there was a real understanding that Detroit was no longer negotiating, but supplicating.

Not long after this astonishing display, Sen Corker again had the floor. He worked steadily towards a compromise based on reality. He pointed out that Gettelfinger could not force his union brothers to accept any sacrifices unless “bankruptcy is the endgame.” His solution: force the UAW to reduce its labor costs to transplant levels and turn at least half of VEBA into equity and get GM bondholders to drop their debt at 30 cents on the dollar by March 31, at which point the federal government would assume debtor-in-possession financing for a reorganization. He also recommended that Chrysler merge with GM.

This appears to be the consensus exiting the meeting. Which means that Cerberus faces a choice of either liquidating Chrysler or merging with GM. Ford will have to survive until retooling loans come available, although there is some chance they’ll get a small credit line with some restrictions.

Meanwhile, General Motors and the United Auto Workers face about 30 years worth of necessary change in just under four months, still absent any guarantees that they’ll even survive that long. There will be further testimony at tomorrow’s hearings before the House Financial Services Committee. TTAC will be watching.