The farcical bailout of GM and Chrysler drew nearer to its inevitable end yesterday as Pres. Barack Obama started laying the groundwork for a blameless escape. The administration rejected both companies’ restructuring plans as inadequate but nevertheless offered them one more last chance: To qualify for more government aid, GM must fire its CEO and come up with a new viability plan within the next 60 days, and Chrysler must reach an agreement to merge with Fiat in the next 30 days.
Both companies reacted quickly. GM CEO Rick Wagoner fell on his sword, and Chrysler announced a “global alliance” with Fiat (turns out that $6 billion in government loans was just the sweetener Fiat needed to close the deal). But even with these changes, it is far from clear that either car company is on a path to viability. Obama acknowledged this reality in his remarks Monday when he said that saving the car companies “may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger.”
That is the very solution that we have been pushing since the automakers first came to Washington, hats in hand. Their arguments against bankruptcy were never compelling, but the hardest to dismiss was their claim that no one would buy a car from a bankrupt company for fear that the company wouldn’t be around to service the warranty. Obama mooted that argument yesterday by announcing that his administration would stand behind any GM or Chrysler warranty from this point forward.
From the beginning, it was clear that bankruptcy was the only solution to the automakers’ problems that made sense. It is no mystery why GM and Chrysler have been unable to reach agreements with their unions or their creditors to restructure in a way that makes them more competitive. All of the stakeholders involved were holding out for more government loans in the hopes of riding out the economic downturn courtesy of the taxpayer. Only bankruptcy can force them to make the necessary concessions — a reality we hope the administration is finally coming to grips with.
Unfortunately, the administration’s plan leaves it plenty of room to act tough while keeping the car companies — and their unions — on the government dole. For starters, there’s that $6 billion the government will loan Chrysler to facilitate its merger with Fiat. No word on whether the administration will take further steps if the mighty Chrysler-Fiat global alliance fails to set the world on fire. And speaking of unions, why is it that Rick Wagoner had to go but United Auto Workers president Ron Gettelfinger gets to keep his job? Certainly Gettelfinger’s recalcitrance has cost taxpayers as much as Wagoner’s ineptitude — our tab for GM alone now stands at $13.4 billion and counting
We really can’t get the government out of the auto business fast enough. If you need more proof of that, look no further than the reports of the Obama administration’s own automotive task force. The task force concluded that existing fuel-efficiency standards have hampered GM and Chrysler’s ability to compete, and that raising fuel-efficiency standards (which the administration supports) would hamper their ability to compete even further. “On a standalone basis,” the task force reported, “Chrysler will struggle to comply with increasing fuel-efficiency standards.” And many of GM’s best-selling products, the task force wrote, “fail to meet the minimum threshold on fuel economy and rank in the bottom quartile of fuel economy achievement.” Obama needs to decide: Do we want viable private automakers, or do we want automaking government adjuncts in the business of selling green cars at a loss?
The only question going forward is whether the Obama administration will calculate that the political cost of pouring billions into the auto companies outweighs the political benefit of subsidizing organized labor and stroking the fantasies of the environmental lobby. The fact that he’s even considering bankruptcy gives us hope, but it is a hope unsupported by anything in Obama’s record thus far.