The Wall Street Journal reports that the Obama administration is prepared to recommend billions in new ‘loans’ to America’s automakers, as long as they meet certain requirements. But once you get past that headline, something very disturbing becomes apparent: Obama’s task force never really considered a bailout on the merits, but concerned itself only with how to structure it. The decision to pour tens of billions more into Chrysler and GM was apparently made before the team was ever named.
Interviews with task-force members indicate that the administration doesn’t want to let General Motors Corp. and Chrysler LLC slip into bankruptcy protection, a course advocated by some critics of the industry. Instead, the task force is expected to say that it sees viable futures for both GM and Chrysler, but only if there are sacrifices from their managements, unions and GM’s bondholders. The team will also lay out a firm timeline for action.
The government is prepared to lend the companies more money. The two companies have requested $22 billion more — including $9 billion for the second quarter. But the task force may not disburse new aid immediately, choosing instead to preserve that as leverage…
The Journal doesn’t really address the conditions the task force will impose on Chrysler and GM in exchange for more of your money, but lawmakers and President Obama have made clear that they’ll be paying companies to make ‘green’ cars. And while the automakers will be thrilled to get the money they need to keep the wolf from the door, they’ll need a lot more before they’re ‘healthy’ again. Francis has previously argued that the automakers will likely need more than $100 billion to get them up and running again. If that’s accurate – as seems likely – this next dollop of aid will have to be followed by much more.
And reading the Journal piece, it’s clear that the auto task force never concerned itself with the wise use of taxpayer dollars; it was all about doing what was needed to justify a political decision cast in stone:
The team didn’t get fully up and running until the last week of February, nearly a week after the companies submitted their plans. Among its first tutors was Sean McAlinden, chief economist at the Ann Arbor, Mich.-based Center for Automotive Research. “They called on a Sunday and wanted us [in Washington] the next day,” Mr. McAlinden says.
His verdict was gloomy. Americans this year will buy around 10 million new vehicles, he predicted, down from 13 million last year. And the market would never again top the 16 million units it last hit in 2007. “They just soaked it up,” says Mr. McAlinden…
The team got another dismal take from Deutsche Bank’s auto analyst, Rod Lache, who made a splash in November when he set a target price of zero for GM’s stock. His advice was to ignore the data. He recalls telling them: “This is a policy decision, not an economic one. One way or another, GM will have to be saved.”
A few days later, Virg Bernero, the mayor of Lansing, Mich., and 10 other city officials from around the country packed into a Treasury conference room with Messrs. Bloom and Deese. The son of a retired GM line worker, Mr. Bernero gave a heated defense of the importance of the auto industry. “We need to make saving the industry a national initiative like the Apollo project,” he told the team. Mr. Bloom, jotting notes, reminded the mayors that he’d spent time both on Wall Street and among the unions.
The team met the next day with executives from Fiat and an adviser who was working on the Italian auto maker’s proposed alliance with Chrysler. Fiat Chief Executive Sergio Marchionne led the team through a 75-page presentation, then served as a “color commentator” as others discussed portions of the document, a person who was at the meeting says.
Mr. Bloom focused on minute aspects of the business strategy, and Mr. Rattner, on how the deal would be structured. People on the Fiat team came away thinking that the task force’s questions betrayed a limited understanding of the industry. “It’s fair to say we walked out of the meeting and were a little unsettled,” says one member of the Fiat team…
The task force met with a committee representing GM’s bondholders on the same day it met with Fiat executives. GM’s bondholders hold about $27 billion in unsecured GM debt, and consequently will play a critical role in efforts to save the company. In June, GM will owe the bondholders $1 billion on convertible debt coming due…
Several auto experts who’ve met with the panel say they’ve been struck by the group’s focus on trying to determine exactly when car sales will rebound. “They are absolutely concerned with the short-term, so it’s hard to see them grasping the medium or longer-term issues,” says Daniel Roos, an automotive expert at the Massachusetts Institute of Technology, who briefed the team in Washington on March 6.
Toyota’s Jim Lentz, who directs sales for North America, says he was grilled by Messrs. Rattner and Bloom on his predictions. “They were very intent on understanding what was causing this huge drop in car sales, and how long it would last,” he recalls.
Mr. Rattner says the focus on basic market forces makes sense. “The biggest variable” the team has had to wrestle with, he says, is “what the demand for cars will be in five years.” If his team knew the answer to that, “a lot of this would get easier.”
John McEleney owns two Chevy dealerships in Iowa and is chairman of the National Automotive Dealers Association. He flew into Washington March 6 with four other dealers, he says, to instruct the team “on how the dealer model works between the dealers and the car companies…”
On March 9, four members of the team — Messrs. Rattner, Bloom, Deese, and White House economic adviser Diana Farrell — flew to Detroit. Their first stop was the United Auto Workers’ headquarters. They met over coffee for two hours in a conference room, union officials say. The three men from Washington wore suits and ties. UAW President Ron Gettelfinger and his three main vice presidents wore oxford shirts embroidered with a UAW crest…
At the Chrysler Dodge truck assembly plant, located in nearby Warren, Mr. Rattner says, the importance of the task force’s work hit home. “At the end of all the numbers we are generating,” he says, “there are real people.”
The overall picture is deeply troubling: the task force came across as a team of dilettantes. They met with auto workers, labor leaders, local officials, car dealers, GM stakeholders, and mouthpieces for the auto industry. If Obama was interested in deciding whether it made sense to bail out GM and Chrysler – and if so, on what terms – he’d have appointed experienced hands who’d have met with experts in turning around distressed companies. That’s clearly not what Obama’s campaign aids and friends did here. We’re left to assume that the tough decision – whether to commit your money to the effort – was made by Obama and his allies behind closed doors, before the process ever got under way.
The least the president could have done was share that information with us, rather than mislead the voters.