President Bush appears to be moving towards offering some relief to the auto industry, as he has reportedly dropped his opposition to utilization of the T.A.R.P. funds allocated by Congress earlier this year. Talks have begun, with details hard to come by now but it appears fairly certain that President Bush will not allow a G.M. bankruptcy on his watch. From the Washington Post:
Bush administration officials kept details about any emerging plan closely held. They are talking with automakers and have yet to make final decisions on the size or length of the help.
White House deputy press secretary Tony Fratto said officials “are continuing to gather financial information from the automakers, assessing the data, their cash position going forward. We’ll take a look at that information, make some judgments and review our options.”
He said the focus is on “trying to get the policy right while considering the best interests of the taxpayer and our economy, and we’ll take the time we have available to do that right. No decisions have been made.”
The attacks from the right have been quick and furious, with the Wall Street Journal editorial page leading the charge.
Who’d have thought Mr. Bush would want to join the long line of Detroit executives in caving to the UAW?
Senate Republicans had more gumption. Led by Tennessee Senator Bob Corker, they asked the auto workers to show they were serious about making Detroit competitive again. In exchange for a lifeline from Washington, Mr. Corker wanted the union to set a “date certain” in 2009 for lowering the Detroit Three’s hourly labor costs to the average of foreign-owned auto makers in the U.S. He also wanted creditors to bring down Detroit’s total debt by two-thirds through an equity swap, making sure debtholders share the cost of restructuring.
The union’s counteroffer was that it would bring down labor costs in 2011, when its current contracts run out. Maybe we missed something, but we thought GM and Chrysler were facing bankruptcy now, not in three years. As Minority Leader Mitch McConnell said on the Senate floor, that sounds like “taxpayer money today for reforms that may or may not come tomorrow.”
And while it is certainly the case that the Senate Republicans sought to put a stick in the eye of the U.A.W. Democrats need to be mindful of the fact the laws of math do not change because the goals are well intentioned. The automakers must produce a plan that rectifies the terrible condition of their balance sheets. G.M. will not survive unless debt is dramatically reduced no matter what short term fix is applied here. In todays auto market their debt load means one thing: BANKRUPTCY! President elect Obama has repeatedly said that the big three must produce a business plan that shows viability. If the attempt is made to rig that concept to protect ANY of the existing stakeholders the result will be bankruptcy. It will just take a little longer.
Bill Manzi.com 