It is being reported that Bush and Obama worked together on the $17.4b bailout package announced today, to avoid saddling the incoming chief executive with “the demise of a major American industry in his first days in office.” And based on Obama’s statement on the bailout today, it seems that he’s preparing yet more assistance for Detroit. Provided of course that automakers don’t “squander this chance to reform bad management practices and begin the long-term restructuring that is absolutely required to save this critical industry and the millions of American jobs that depend on it.” Ironically though, the bailout’s structure does dump the problem on Obama before even the March 31 date. Dow Jones (via CNN Money) reports that the final $4b of Bush’s bailout (designed to carry the restructuring firms through February) can not be doled out without congressional activation of the second half of the TARP fund. And Bush ain’t gonna even try. “It’s not necessarily true that this administration, in the remaining 31 days, I believe, will go back to Congress,” White House Deputy Chief of Staff Joel Kaplan said. “What is clear is that the Treasury, with these loans (the initial $13.4b), have effectively committed the first $350 billion from the TARP.” Which means Obama will have to request that congress open the final $350b before the March 31 deadline, and only days into his presidency. And if he does free up the $350b (which he is far more likely to accomplish than Bush), well why the hell not give Detroit even more? We sure wouldn’t be surprised.
Category: Bailout Watch
Ever since Cerberus took ownership of Chrysler, it has been lights out at what was once America’s third-largest automaker. With Daimler holding on to a 20% stake in the firm, some small news was public. And Chrysler did report its [dismal] sales each month. But that’s about it. The public relations folks were rolled into human resources. Cerberus played its cards close to its chest. And this was what we all expected from the beginning; it was at least in theory one of the major high-points of Cerberus taking over as Chrysler’s owner. They didn’t have to keep an open book, report financial data, and be subject to the short-term goals of shareholders. But it has also meant we have no idea what is going on inside this big company with tens of thousands of employees. Now that you and I are non-voting shareholders, we should have a better idea.
The New York Times reports that President Bush has revealed his bailout plans for GM and Chrysler. The Gray Lady says the loans “include roughly the identical requirements in that bill, which had been approved by the House.” More specifically [via Bloomberg]: “Under the terms of the plan, if the companies can’t demonstrate financial viability by March 31 the loans will be called and the money must be returned… The government’s debt would have priority over any other debts. In exchange for the money, the automakers must provide warrants for non-voting stock, accept limits on executive pay, give the government access to financial records and not issue dividends until the debt is repaid. The government will have the authority to block transactions larger than $100 million. The automakers much cut their debt by two thirds in an equity exchange, make half of the payments to a union retirement fund in equity, eliminate a program that pays union workers when they don’t have work and have union costs and rules competitive with foreign automakers by Dec. 31, 2009. The requirements could be modified by negotiations with the union and debt holders.” The bottom line…
Yes, bailout watchers, President Bush was under pressure to make an announcement today on the possible use of TARP funds to rescue the domestic auto industry. And by the looks of things round Chrysler way, waiting even until today was probably a stretch. But Bush has juked expectations (and not for the first time) by failing to make any kind of announcement by close of business today. And this mysterious defiance of the media-proclaimed deadline has ABC News wondering “What’s Taking So Long?” No, seriously, that’s the headline. Not being the kind of news source that asks a question with no convenient answer, ABC quickly reveals that “some of the GOP senators who killed a congressional bill to save American carmakers last week have written to the president to say they don’t believe ‘any amount of money’ will save the struggling car companies without major changes to how they operate.” The letter was signed by senators Jim DeMint; Jeff Sessions; John Ensign; Tom Coburn; John Cornyn; Mike Enzi; and Saxby Chamblis as well as more than two dozen Republican members of the House. The White House responded through spokesman Tony Fratto, who told ABC “it’s a huge industry, and both the problem and the potential solutions are complicated. Congress is leaving the administration with suboptimal choices to deal with the issue.” Meanwhile, for Chrysler and GM the choices become increasingly “suboptimal” with every passing hour.
As Detroit holds its collective breath on President Bush’s plan to pull the automakers’ collective fat from the metaphorical fire, the autobologosphere’s been quiet. No doubt something’s up, including GM’s stock. [NB: a large percent of bupkis is still bupkis.] And the longer this jury stays out, the more likely bankruptcy’s the final verdict. Yesterday, Moody’s published this report pegging the odds of a pre-pack with (federal debtor-in-possession financing) C11 at 70%. To which nobody said nothing (excluding own Bertel Schmitt). Today, The Wall Street Journal published a piece saying consumer resistance to buying a car from a bankrupt automaker is declining. And then there’s this, from Bloomberg…
“If we’re going to use taxpayer financing to assist the automakers, all stakeholders are going to have to come to the table and be willing to show that they are capable and willing to make really tough decisions about the way forward,” White House Spokesperson Dana Perino said today. “We’re not going to be rushed into it just because there’s pressure from the media… on us to do something rash.” Yeah, hurry up and do something rash, will ya? “We need them to become viable, competitive firms in the future. And in order to do that, concessions are going to have to be made by stakeholders.” Not to mention everything else.
It seems scarcely credible that GM and Chrysler’s fate– or lack thereof– now rests entirely in the hands of The President of the United States. Or, more precisely, his staff. Who, according to The Wall Street Journal, “spent the weekend poring over the auto makers’ books to assess their financial needs.” Which, to my mind, is a bit like saying they’re pawing over the automakers’ entrails. Of course, I would never stoop that low, busy as I am wetting my metaphorical finger and sticking it into the rarified air of the autoblogosphere, trying to divine which way the Divine Wind is blowing. Ominously, The Journal reports “The administration is trying to determine how much money it will take to help the car companies, and is discussing a rescue totaling $10 billion to $40 billion or more.” Sneaking in $14b or so from the remaindeer [sic] of the much-vilified $700b Troubled Asset Relief Program by executive fiat to shove this mess on Messr. Obama’s plate is one thing. Finding 40 billion dollars or more for the failed automakers is quite another. In other words, there are only two ways this thing can go. Either a short term “bridge loan to nowhere” or…
The ratings agency Moody’s Investors Service gets, well, a bit moody about the “bankruptcy is no option” outlook favored in certain Detroit circles. Moody’s says the odds are 4:1 against that happening, Automotive News (sub) reports.
Moody’s said there is about a 70 percent chance of a prepackaged bankruptcy coupled with government assistance. Moody’s graciously places these odds on all three Detroit automakers.
A government bailout without a bankruptcy, Detroit’s favorite, is given just a 25 percent chance.
Detroit will find solace in the fact that Moody’s sees just a 5 percent chance of a “freefall” bankruptcy without a prepackaged plan.
“We think it’s most likely that a prepackaged bankruptcy filing coupled with government financial assistance will be needed to restructure the Big Three,” Moody’s Senior Vice President Bruce Clark said in a statement.
“Jet Gate” was a bit of an embarassment all ’round. Even Detroit’s fiercest critics (oh me! pick me!) understand that a business jet is an acceptable expense when you’re running a multi-national corporation. Provided, of course, you use the jet to get an efficient, realistic, first-hand look at conditions “on the ground” within your far-flung Empire; from factories to suppliers to dealers. Rather than, I dunno, ferrying the wife and kids back and forth to Seattle. Or flying to one location that’s well-served by commercial traffic. Anyway, Detroit’s chastened uber-suits made a big show of selling the jets (how’s that going guys?) and wheeling into DC (for round two) in their companies’ most fuel efficient products. Well, not the most efficient. That would have hurt. And now, thanks to The Detroit News’ Charlie LeDuff, TTAC can reveal that Mr. Mulally and Mr. Wagoner’s drivers– yes, drivers– “split the job.” What’s more, “Those who drove the executives to Washington flew home to Detroit, while those charged with driving the executives back flew one way to Washington to pick them up.” LeDuff says “In the end, it would have been cheaper to fly the jets.” But we couldn’t possibly comment.
John L. Perry’s column on Newsmax.com is way out there. But his comparison ‘twixt the Motown bailout and Charles Ponzi’s infamous con game (whereby the first in bilk the last out) isn’t entirely forced hot air (i.e. all heat and no light). “Under a Ponzi scheme, the sheep get fleeced because they want to play the game. They convince themselves they’ll get rich quickly. Otherwise why part with a single dollar? In fact, the crook running the Ponzi scheme has a hard time beating off the gullible, who can’t wait to be gulled. Under the Detroit scheme, every opinion poll taken — for whatever that’s worth — shows American taxpayers overwhelmingly do not want their tax dollars spent this way. Apparently, they don’t know what’s good for them.” In other words, no, the bailout is not a Ponzi scheme. It’s worse. “In a collapsed Ponzi scheme, the crook in the private sector can go to jail. In a collapsed Detroit scheme, no one in government goes to jail.”
Perception: All Detroit needs is deep restructuring and federal bailout money for long-term viability.
Reality: Wrong. Detroit needs what America sorely needs — a Congress with the leadership chutzpah to devise and implement industrial and energy policies that will help to keep native manufacturing industries alive. Detroit’s problem isn’t poor products or lack of products. It’s a national government still wedded to the debilitating siren song of cheap gasoline. It’s a nationally collapsed financial system. And it’s governmental hypocrisy — our willingness to pour tax dollars into foreign enterprises, most of them not unionized, while griping about doing the same for homegrown, unionized manufacturers largely responsible for building America’s middle class.
Video re-enactment of last week’s attempts to get the bail-out plan through both chambers.
Important Message Update: White House Statement
Mark LaNeve, Vice President, GM North America
12/12/2008
Dear U.S. Dealers:
Last night the United States Congress failed to reach agreement on a $14 billion emergency bridge loan in support of the domestic auto industry. Obviously, we’re very disappointed in this development. As critical a situation as this is, GM’s leadership continues to look at options to restructure and stabilize the business in this exceptionally difficult economic period.
I can’t possibly express my appreciation and pride for your participation in this effort. General Motors dealers could not have done more to show support for the loan legislation. You and your teams made thousands upon thousands of contacts with our congressional leaders. Many of you traveled to Washington to meet with your representatives personally, while others organized funds to place ads in local media. I truly believe that your voice was heard and that your efforts will impact the future outcome…
The Washington Post reports that President Bush has signalled (from Air Force One no less) that he will “consider using funds from other sources to provide emergency aid to the nation’s Big Three car companies following the Senate’s rejection Thursday night of a Congressional bailout plan.” This is a reversal of Bush’s previous insistence that the money for Motown’s Troubled Twosome (Ford’s maintaining its low profile) must come from the Department of Energy’s $25b “retooling” loan program, and follows Congress’ abortive efforts to scarf the funds. “Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms,” the White House statement said. “However, given the current weakened state of the U.S. economy, we will consider other options if necessary — including use of the TARP program — to prevent a collapse of troubled automakers.”
And there you have it: Senate republicans have scuppered the Detroit bailout. Automotive News [AN, sub] reports that democratic Senator Harry Reid has thrown in the towel at the the eleventh hour (literally). “”We have not been able to get this over the finish line,” Senate Majority Leader Harry Reid said after 10 p.m., following daylong negotiations to broker a deal among lawmakers, automakers, auto workers and other interest groups.” AN clearly identifies the United Auto Workers as the gordian knot that could not be unpicked. “But few could have predicted the final stumbling block: A dispute over when UAW workers would consent to have their wages reduced to match those paid to nonunion workers in U.S. import-brand factories. ‘We are three words away’ from an agreement, said Sen. Bob Corker, R-Tenn. He said workers wouldn’t accept a 2009 deadline for the parity demand.” And why would they? They’ll get less of a “haircut,” and more power, in bankruptcy court. Meanwhile, GM released a statement on the bill’s failure…
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