Bailout Watch 267: $15b Bailout Plan Revealed

Robert Farago
by Robert Farago

Here’s a copy of the draft Detroit bailout bill. While we digest it, here’s what we know so far… Automotive News [sub] says that yes indeed, there will be a car czar. Appointed by President Bush. The Freep is more specific. “Under the bill, automakers would have to submit a restructuring plan by March 31 to what’s being called a ‘financial viability advisor,’ who would have the power to set negotiations among the company, unions and creditors. If the advisor deems the company isn’t making progress, the loans could be called back.” In other words, he or she could throw The Big 2.8 into bankruptcy, without passing go, without collecting $34b (just some of it). Well, fair enough. But from there, things get seriously gnarly…

“The industry superintendent [euphemism three] would create his or her own plan for a government-mandated overhaul if the Detroit 3 failed to create acceptable proposal before April.”

WTF? So if Ford, Chrysler and GM can’t get their shit together, the feds take over? Can they do that? Not yet. But soon…

“As with the first rescue plan, automakers would have to pledge stock to the government equal to 20% of the loan value in return for the money, and the loans would be senior to all of the company’s other debts.”

So for a 20 percent stake in a company with negative net worth, Uncle Sam gets to call ALL the shots as and when they want? And how does that square with the Ford family’s special class of voting stock? Dunno.

That last bit– re: creditor cram-down– represents a HUGE departure from existing financial regulations. For the first time, the U.S. government will be able to come into a [theoretically] solvent company (invited or not) and force legal creditors to the back in the queue. Call it nationalization via the front door. Faustian doesn’t even begin to cover it.

And if you need proof that this bill will create D2.8 reform in name only, The Wall Street Journal [sub] says “Despite calls for the ouster of auto executives, the heads of the three U.S. auto companies would not lose their jobs as part the package under discussion, a senior congressional aide said Monday.”

Still, GM CEO Rick Wagoner and his teams’ golden parachutes are headed for dumpster. Allegedly. “Additionally, no bonuses could be paid to the top 25 senior employees, and no golden parachutes would be extended to departing senior employees.” Fine print please…

It gets worse…

One of the key strings: Detroit has to drop its lawsuit against California’s emissions regulations. How does it help Chrysler, Ford and GM make enough money to repay your pay money? Obviously, it doesn’t. Obviously, it COSTS them money; otherwise they wouldn’t have been fighting the regs (duh).

Even before the checks cashed, the politicians are molding the D2.8’s corporate policies in accordance with political correctness, not profit. As we’ve pointed out, this is just the beginning of some extremely bad decision-making.

He who owns the gold makes the rules.

Robert Farago
Robert Farago

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  • TaxedAndConfused TaxedAndConfused on Dec 09, 2008

    Remember these loans will not "save" these jobs, only delay the inevitable.

  • RickCanadian RickCanadian on Dec 09, 2008

    Here is the chain of events: First, the Government pours money into a private company, and jobs are saved... for a while. Remember, the "Government" is not an individual, is a bunch of people with diametrically different aspirations and objectives (that's why it's called a "democracy", everyone has a say) Second, since they invested that money, they feel entitled to influence business decisions. Third, since everybody in the Government has different aims, they do what politicians do: compromise. Which is good for a debate, but in a company that means not having a clear direction or vision of the future. Fourth, when things get worse (probably because of the market conditions), somebody should be blamed for it. More debate on where the company should be headed, and less direction as a result. Fifth, the company is even worse because of lack of a clear direction. More money needed to run it, and more Government intervention. Sixth, the company is finally nationalized. Lots of money, lots of debate, no direction... and terrible products. Nobody wants to buy from them, they turn to private companies. Therefore, the Government enacts protectionist rules to help the company out. Result: product quality goes to hell. Seventh, after gazillions of $$$ poured into the company, products are awful, productivity is terrible (all jobs are guaranteed, so who cares about working harder?), losses increase and the Government runs out of money. Result: they try (maybe succeed) to sell the company to somebody (i.e. Privatize). As pre-condition for the sell, the buyer demands millions of job cuts, lower salaries and Government incentives (i.e. money). Final results: even more jobs are lost in the long term, salaries at the bottom, Government bankrupt, awful products, no competitiveness and one very happy investor buying the spoils for nothing. This has happen in the past in many places, will happen now to the US if this goes forward.

  • Mikey My late wife loved Mustangs ..We alway rented one while travelling . GM blood vetoed me purchasing one . 3 years after retirement bought an 08 rag top, followed by a 15 EB Hard top, In 18 i bought a low low mileage 05 GT rag with a stick.. The car had not been properly stored. That led to rodent issues !! Electrical nightmare. Lots of bucks !! The stick wasn't kind to my aging knees.. The 05 went to a long term dedicated Mustang guy. He loves it .. Today my garage tenant is a sweet 19 Camaro RS rag 6yl Auto. I just might take it out of hibernation this weekend. The Mustang will always hold a place in my heart.. Kudos to Ford for keeping it alive . I refuse to refer to the fake one by that storied name .
  • Ajla On the Mach-E, I still don't like it but my understanding is that it helps allow Ford to continue offering a V8 in the Mustang and F-150. Considering Dodge and Ram jumped off a cliff into 6-cylinder land there's probably some credibility to that story.
  • Ajla If I was Ford I would just troll Stellantis at all times.
  • Ronin It's one thing to stay tried and true to loyal past customers; you'll ensure a stream of revenue from your installed base- maybe every several years or so.It's another to attract net-new customers, who are dazzled by so many other attractive offerings that have more cargo capacity than that high-floored 4-Runner bed, and are not so scrunched in scrunchy front seats.Like with the FJ Cruiser: don't bother to update it, thereby saving money while explaining customers like it that way, all the way into oblivion. Not recognizing some customers like to actually have right rear visibility in their SUVs.
  • MaintenanceCosts It's not a Benz or a Jag / it's a 5-0 with a rag /And I don't wanna brag / but I could never be stag
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