Obama decides on GM bankruptcy
posted at 4:05 pm on April 1, 2009 by Ed Morrissey
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This didn’t get much coverage from the mainstream media today, so I’ll run with the Reuters report from last night. After hemming and hawing over an additional request for massive taxpayer funds from GM, Barack Obama has decided that a structured bankruptcy is the best course of action after all:
President Barack Obama has determined that a prepackaged bankruptcy is the best way for General Motors Corp. to restructure and become a competitive automaker, Bloomberg reported, quoting people familiar with the matter.
Obama also is prepared to let Chrysler LLC go bankrupt and be sold off piecemeal if the third-largest U.S. automaker can’t form an alliance with Fiat SpA, Bloomberg said, citing members of Congress who have been briefed on the subject and two other people familiar with the administration’s deliberations.
Obama on Monday gave GM 60 days to come up with deeper cost and debt reductions than the biggest U.S. automaker had proposed in a viability plan submitted last month.
But a “quick and surgical” bankruptcy the Obama administration described as an option appears to be inevitable, the people familiar with the matter said in the Bloomberg report.
Yesterday, new GM CEO Fritz Henderson said the same thing, which helped Wall Street to a significant down day on the DJIA. It appears that the $14 billion we taxpayers invested in GM went for naught.
Politically, though, this won’t hurt Obama. The decision to bail out Detroit came from the George “I had to kill free market principles to save the free market” Bush in November. GM and Chrysler both took huge sums of money from the Treasury during Bush’s administration. If those funds get lost in the bankruptcy that should have taken place instead of the bailout, then we will have to blame that on Bush, not Obama.
The question will be what the Obama administration does to “structure” the bankruptcy, rather than just have GM go through the normal court process. Clearly, the automakers will have to restructure pension, health benefits, and compensation agreements with labor. If Obama allows that to happen, however, he will enrage the union bosses who backed him for the presidency, especially if it looks as though Card Check will not make it out of Congress. If Obama doesn’t allow for that restructuring, though, the bankruptcy will wind up doing nothing but wasting time and closing off the last opportunity for GM to get itself off the mat.
Given the direction of this administration so far in this crisis, I’m going to bet they take the politically prudent path, rather than the financially sound path.
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From where the sun now stands, I will buy no more UAW products forever.
Hinmahtooyahlatkek on April 1, 2009 at 5:13 PM
The games people play….
even the Swedes have said “no” to Saab wanting a spot on their teat…
sven10077 on April 1, 2009 at 5:13 PM
Team Chicago Jesus will load the Board of GM with the best and brightest from the UAW and ACORN! This should remind everyone of the first swing set they ever put together!!
Dire Straits on April 1, 2009 at 5:16 PM
Obama is a Swede with his head cut off.
MB4 on April 1, 2009 at 5:16 PM
Mikhail Sergeyevich called it “Перестройка” (perestroika).
And that worked out very nicely.
The Monster on April 1, 2009 at 5:17 PM
You’ve hit it out of the park. What reason is there for Obama to do a “pre-packaged bankruptcy” other than making strictly political decisions in the restructuring?
So here’s a potential Obama game plan:
1) As pointed out above: Nationalize Healthcare. This provides tangible proof of Obama’s previous statement that Nationalized Healthcare is necessary for economic recovery. It can even be extended to making all U.S. businesses more competitive. (Please don’t think I agree with this nonsense – it just tracks with the administration’s spin!)
2) Eliminate the auto industry’s pension costs by taking over retirement funds and benefits. It seems there was a House bill to effectively nationalize all 401(k)’s and put the funds into Federal / Social Security accounts backed t-bills / bonds gauranteeing 3% interest. This was tabled somewhere around the election. Spin: Competitiveness improves, and now we’re relying less on foreign investment to debt-finance President Obama’s over-spending by forcing American workers to invest in the debt.
3) Bond and stockholders, any other finance related issue: Treasury already runs the financial sector of the economy. The only bond or stock holders capable of effectively fighting any Administration restructuring would be institutional investors or other big/significant organizations. All of which are already either chained to Treasury through bail-out funds or are being threatened with take-overs based on Geithner’s request for expanded powers to declare any organization “too big too fail” or “too risky to the economic recovery to leave in non-Government hands.”
4) Extend Treasury oversight to the entire automotive supply chain by extending oversight to cover any firm that directly or indirectly receiving TARP or other bailout funds. This would effectively cover the suppliers of Toyota, and other offshore car companies, since most suppliers manufacture for the entire industry – not just the US big three. (and there’s existing precendent for this.)
5) File in a “friedly” court. As noted by several commenters above Michigan Fed. judges would possibly be agreeable to whatever Washington asks. As would California courts, and several other places including D.C.
Under a scenario like the one above, President Obama could do anything he wanted – what ever’s politically expedient, like protecting unions – and get it pushed through. Sure, there’d be a lot of yelling and screaming. But it would be a done deal through the combined force of the 3 branches of Government.
Think it can’t happen? Just look around you. Is it for sure? No way. Just don’t underestimate your opponents…..
Perfesser on April 1, 2009 at 5:20 PM
Remember not to lump Ford in with the other two… they haven’t taken any government (i.e. taxpayer) money. And it doesn’t look like they’ll be going bankrupt anytime soon.
TSUGambler on April 1, 2009 at 5:24 PM
Oops…there goes Toyota products! Along with some others!!
Toyota has UAW, Teamsters, and other unions in some of their plants. And they work with each other AND management quite differently than what Detroit experiences.
Plus, many of the major suppliers to ALL automotive companies are unionized by UAW.
While I understand the sentiment, applying it will be a lot harder than it seems at first glance.
Let’s try getting government back to working within Constitutional boundaries first.
Perfesser on April 1, 2009 at 5:25 PM
Great point!!
How long will Ford survive after the Government takes over or takes down GM and Chrysler?
Wells Fargo did not need, and indeed refused, TARP funds. Government eventually gave them no option – forcing Wells to take the money. Now one of the few “good” big banks has been forced into Government control along with the “bad” banks.
Will Ford suffer the same fate?
Perfesser on April 1, 2009 at 5:28 PM
Don’t know if this has been mentioned in the comments, but I think I know why both sides have decided on bankrupcy after all. In the contract for the $14 bln last year, that amount was supposed to have been repaid by…yesterday. If not, then the gubmint was supposed to call the note. Coinkidink? I think not.
bikermailman on April 1, 2009 at 5:36 PM
Restructuring is pointless. You can’t restructure market share. Market share is the problem that the Big 3 can not solve with government money. If not enough people want to buy GM cars to make the company profitable, there is nothing any politician can do to change that. You can lead a horse to a GM dealership, but you can’t make him buy a car.
The only government solution to GM market share woes, is to force the public to buy a GM product. But even the Soviets didn’t force the people to buy a Trabant.
keep the change on April 1, 2009 at 5:36 PM
I hope all the haters have very secure, well paying jobs. When Obama takes my pension away, I’ll be living off the taxpayers.
Dave from Flint on April 1, 2009 at 5:37 PM
They have to hire them thanks to Bush 1 and the American’s with Disabilities Act.
Ann NY on April 1, 2009 at 5:43 PM
Ogabe thanks you for your political spending….
sven10077 on April 1, 2009 at 5:43 PM
Bishop, are you the type that has to find the silver lining of dark cloud? The stock market might be crashing but at least we don’t have to endure idiots like getalife?
Ann NY on April 1, 2009 at 5:47 PM
The idea of boycotting UAW, or using similar “market activist” tactics to express anger over the current situation, illustrates the general folly of placing massively complex economic systems under government control. I can understand Hinmahtooyahlatkek’s sentiments, but trying to influence the market through such a boycott is futile, for the reasons you outlined… and even if a vast number of Americans joined in the boycott, it would have the principal effect of weaking an already damaged industry further and inviting even more state control.
Strictly enforced Constitutional limits are absolutely necessary to the maintenance of a democracy, because there will always be energetic constituencies for government solutions to any problem. Those who advocate such solutions will always be seen as “progressive” activists who are doing something, while those who prefer to allow free men and women to solve their own problems will always be depicted as callous or uncaring. Governments will, by definition, always be run by people who traffic in emotions instead of reason – it’s ridiculous to expect candidates for Congress or the Presidency to be doctors of economics, master engineers, brilliant sociologists, and wise philosophers, all at the same time. It’s even more ridiculous to expect the voters to be all these things – but that is exactly what would be required, for an electorate to make wise choices when selecting the leaders of an Obama-style Total State. An electorate that would be hard-pressed to accurately recall one policy recommendation of the presidential candidates is not well-suited to select the CEO of America, Inc. Under a strictly Constitutional system, they don’t have to be.
Government is supposed to serve as the economic referee, the court of last appeals… when it becomes an active player, asserting control over corporations directly, there is no higher authority to control or regulate it. Who regulates the regulators? The customers of a free-market auto company can force the board of directors to remove an incompetent or criminal CEO, by choosing other market alternatives. The customers of General Motors, and its shareholders, lost all such control when Barack Obama assumed personal control of the company. His removal from office will have very little to do with how badly he wrecks GM, and the operatives of ACORN will have more to say about it than the shareholders of that doomed corporation.
Doctor Zero on April 1, 2009 at 5:50 PM
If i remember correctly, wasn’t Bush a little apprehensive giving them funds? I remember Obama going to Washington and trying to “talk him into” giving them some of TARP.
In any event, I’m glad that they are going bankrupt, even though they should have way back when. I’m pissed that the money was lost.
We’ll just have to wait and see how the bankrupcy works out and if Obama stays out of it.
deidre on April 1, 2009 at 5:53 PM
Ed:
That $14 billion might not have been for naught. My understanding is that without that loan, they would not have been able to make payroll within a few weeks. They were not looking at an orderly bankruptcy, but collapse. I can not understand how GM could have let things go that far. They should have been thinking about bankruptcy long before last December.
Terrye on April 1, 2009 at 5:59 PM
Screw ‘em……
-Kos
no seriously 14 billion could have bought 3 new carriers….
sven10077 on April 1, 2009 at 6:02 PM
I think that GM has been a wreak for some quite time now. If a car was in similar condition the insurance company would have classifed it as totaled some time ago.
MB4 on April 1, 2009 at 6:12 PM
some quitequite someMB4 on April 1, 2009 at 6:13 PM
I will not be able to attend GM’s funeral, but I will be sure to send a nice card saying that I approve.
- “Mark twain”
MB4 on April 1, 2009 at 6:28 PM
Didn’t the carmakers turn the pension funds over to the union some time ago? What happened to that money?
hip shot on April 1, 2009 at 6:28 PM
Mr. Obama was a bit slow on the uptake on this one. It took him over 24 hours to figure out that by standing in the way of the BK, he was about to ‘own’ the GM mess.
Neatly sidestepped, sir.
DrW on April 1, 2009 at 6:33 PM
24 hours? Seems like, unless you figure it very narrowly, it took him a lot longer than that. He wouldn’t last long on any battlefield that’s for sure.
MB4 on April 1, 2009 at 6:38 PM
google, “social security”, “democrat house majority lasting 42 years”, and “LBJ”….
happy reading…
sven10077 on April 1, 2009 at 6:38 PM
Only has to work until the next election cycle. Unions didn’t elect Obama to get bent over the sink. He will need the union vote to get reelected. The structured bankruptcy will be directed by politicians and we know how good they are at safeguarding our money.
OT Did anybody see the video of Medvedev laughing at Obama? He was kicking the floor like a demented ventriloquist’s dummy. He couldn’t contain himself during the press briefing with our President.
Angry Dumbo on April 1, 2009 at 6:38 PM
sven10077 on April 1, 2009 at 6:38 PM
I don’t have the rest of my life to do that. The budget and bailout bill are taking all of my time.
hip shot on April 1, 2009 at 6:42 PM
their pensions fund gets “loaned” out, gets used for “great ideas” etc etc
ie they are like a mini Congress…
sven10077 on April 1, 2009 at 6:45 PM
sven10077 on April 1, 2009 at 6:45 PM
But these ideas are so good and care for so many people….a mini Congress, we’ve got one too many of them already. Please send a buxom lady I think I’m going to puke!
hip shot on April 1, 2009 at 6:49 PM
Obama’s restructuring plan:
Give Chrysler to Fiat (who owns Fiat?)
Since the Federal government is now the guarantor of all GM product warranty, would it not make sense for the Federal Government to guarantee UAW retirement and health care?
So, as several have predicted on this blog, the Federal Government will put the UAW on the Federal payroll, and the holders of GM debt will get stiffed.
Skandia Recluse on April 1, 2009 at 6:54 PM
Oh, and the UAW will be paid union scale to produce a product that no one wants, and no one can afford.
Skandia Recluse on April 1, 2009 at 6:54 PM
I was one of them…..the UAW will have better federal retirement than soldiers…..
“change”
sven10077 on April 1, 2009 at 6:55 PM
From the second that GM got the first dollar from the fed, you already were.
quax1 on April 1, 2009 at 7:21 PM
cue snare drum….
sven10077 on April 1, 2009 at 7:24 PM
Henderson needs to push harder and faster.
unclesmrgol on April 1, 2009 at 8:39 PM
Right on! Power to the customer.
Sapwolf on April 1, 2009 at 10:27 PM
More importantly, she has a heart of gold.
She’ll be a great POTUS.
The Gipperette.
Sapwolf on April 1, 2009 at 10:31 PM
F**k you Dave. You never gave a shit about anybody else’s non-union job.
Why the F**k should we give a shit about you getting all your underserved f’in benefits?
I lived up there for some years. You pricks are the most selfish maggots in America.
The big three: Management / UAW / Detroit residents
Armpit of the world.
You never gave a shit about us when IT is inundated with H1B.
Piss on you and eat sh*t!
Sapwolf on April 1, 2009 at 10:36 PM
Follow the money. It will be all of his election buddies.
This guy is as corrupt as they come.
johnnyU on April 1, 2009 at 10:54 PM
This was the plan all along. Obama gets to change the board of directors, fire the CEO, then declare bankruptcy so he can give the UAW a lovely parting gift.
amkun on April 2, 2009 at 12:59 AM
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