Government Motors

U.S. role at GM to be passive, Obama vows

President Obama said Monday that the U.S. government had no interest in taking an ownership stake in General Motors Corp. But faced with two other bad options -- letting the legendary automaker fail or simply extending more government loans that would add to the company's strangling debt burden -- he had no choice...

But Obama's decision to take the unprecedented step of assuming ownership of a major manufacturing company opened him up to sharp criticism that he was nationalizing the automaker. The Republican National Committee quickly dubbed the company "Government Motors."

"No matter how much the president spins GM's bankruptcy as good for the economy, it is nothing more than another government grab of a private company and another handout to the union cronies who helped bankroll his presidential campaign," Republican National Committee Chairman Michael Steele said...

Obama directly rejected criticism from some small bondholders that the United Auto Workers union received a more generous deal in exchange for giving up some of the debt GM owes to a retiree healthcare trust.

But Mark Modica, 48, business manager at a Saturn dealership in Doylestown, Pa., said he thought the UAW did better than small bondholders like him...

"We have retirees on our side who are losing their retirement, but it seems like the retirement of the people in the union is being protected," he said. "I don't think there's a doubt there was preferential treatment."

Despite Obama's vow to be a hands-off investor, the government's majority interest in GM opens up the White House to political pressures on key company decisions. The auto task force has already been lobbied by some members of Congress who want to keep GM plants in their districts open.

Other legislators are pushing back against the plans by GM and Chrysler, which the administration also forced into bankruptcy, to ax hundreds of dealers...

But the Obama administration said its ownership of GM won't extend to operational decisions. Those will be left to the company's board, a majority of which the administration will choose from seasoned business executives...

The notion that the government is merely a passive investor is, of course, a fiction. Management may have nominal freedom to make decisions, but nobody needs to be explicitly told where the bread is buttered.

The charge that Obama rewarded UAW retirees -- who many Americans blame for the collapse of GM -- at the expense of less politically savvy retirees, will, I think be very effective politically as faces are put on the dis-favored class.

The more interesting, to my mind, political exposure for Obama is his call for smaller, greener cars. Most Americans, in particular those in sub-, or ex-, urbia with families need bigger cars. The Prius is a car for urban singles. If three years from now family-sized cars are more expensive, or harder to come by, it will be easy to blame the President. This sort of attack stands to be particular effective given its easy relation to many existing lines of attack: Democrats being over-eagerness to intervene+politicize the free market/make choices for people, Democrats lacking understanding of family values, etc.

Republicans would be wise to be careful to avoid statements predicting the GM's failure. GM's failure is in no one's interest, and rooting for it is dangerous politically. Further, should GM succeed it ought not become an excuse, or template, for further, more expansive, politicization of the economy. It is, of course, far from clear at the moment, that "republican" and "wise" are two words that can be safely joined in a sentence.

Fighting Fire With Fire

Funds move to halt Chrysler restructuring

hree of Chrysler’s secured creditors are mounting a fresh attempt to thwart the carmaker’s Chapter 11 reorganisation on the grounds that it violates their legal rights and the US government’s authority under the Troubled asset relief programme.

The three – all Indiana state pension funds – are among a group of 46 creditors that had appeared to back away this month from efforts to derail the process under which a “new” Chrysler would emerge from bankruptcy protection by July 1...

Chrysler, with backing from the US Treasury, had offered its secured creditors just under 30 cents on the dollar to settle claims totalling $6.9bn. Four big banks, holding the bulk of the claims, accepted the offer following political pressure from Washington.

However, the Indiana State Teachers’ Retirement Fund said on Wednesday that it had a fiduciary responsibility to its members to continue the fight. The fund stands to lose $4.6m under the current settlement proposal and has teamed up with Richard Mourdock, Indiana state treasurer, to try to recover those losses.

It says something about the power of government that the only people willing to stand up to the apparent abuse of power by the federal government are state governments. The vaunted private sector? Not so much.

I wonder if there is a space here for a shareholder lawsuit. If the Indiana State Teachers’ Retirement Fund has this fiduciary responsibility to its members, are shareholders in firms dropping trou for the administration owed less?

(Big) 3 + (Chapter) 11

http://www.nytimes.com/2008/12/03/business/03auto.html

“I think it’s pretty clear that bankruptcy is not an option,” Ms. Pelosi said. But she said that the companies’ revamping plans must first pass muster among skeptical lawmakers who sent executives of the Big Three home from Washington empty-handed last month.

Its pretty clear, I guess, if you answer to Labor, that bankrupcy is not an option, but far less clear otherwise. The arguments one hears against bankrupcy are pretty weak. If these are companies that are in such bad shape that Chapter 11 won't save them, its hard to imagine Government loans will.

That said, so long as all the involved parties agree-to a viable plan, the bailout, being loans that will be paid back, won't cost taxpayers in the long run, and might save some grief in the short run.

Management appears to be presenting a plan that to a large degree mirrors the sort of restructuring Chapter 11 would produce making it more mysterious as to why Chapter 11 itself is inconcievable.


But G.M., the world’s largest automaker for decades, said Tuesday that it was in such dire straits that it would deeply cut jobs, factories, brands and executive pay as part of its plea to get $12 billion in federal loans and an additional $6 billion line of credit. G.M. also promised that it could be competitive on labor costs with Toyota by 2012.


With Chapter 11, GM could be competitive on labor costs with Toyota by 2009!


Mr. Wagoner is scheduled to drive to Washington in a Chevrolet Malibu hybrid vehicle, a concession to criticism from lawmakers who chided the Detroit executives for flying on private aircraft to last month’s hearings.

Mr. Mulally was en route to Washington on Tuesday in a Ford Escape hybrid, and Mr. Nardelli was set to leave drive in one of Chrysler’s hybrid S.U.V.’s.


Are there any unicycle manufacturers out there to bail out? Or better yet, what about the guys that make:



Mr. Henderson said that G.M. would try to negotiate a reduction in its debt from $66 billion, to about $35 billion. While he would not elaborate, the company was expected to ask bondholders to take equity in exchange for reducing their payout on long-term bonds.

G.M. will also seek to cut its labor costs by reopening its contract with the U.A.W. Possible cost cuts in the contract include eliminating job security provisions, including the so-called jobs bank that pays idled workers when their plants close.

So the plan is turn debt holders into equity holders and restructure labor agreements. But chapter 11 is not an option?

The article leaves open -- tho certainly Congress certainly should not -- the amenability of the bondholders and the UAW. It would be irresponsible of congress (which I suppose is perhaps rather more imaginable then Chapter 11), to fund the bailout without being assured in some manner of the co-operation of these other stakeholders.