Editorial: Bailout Watch 243: The Bottom Line. For Now.

Edward Niedermeyer
by Edward Niedermeyer
editorial bailout watch 243 the bottom line for now

The tone at today’s nearly six-hour congressional hearing on the auto industry bailout was markedly different than the now-infamous hearings of 11/18. Last time ’round, the automakers thought they were flying walking into a bailout-friendly environment, and maintained their PR-fluffed facade of a few good companies who had fallen on hard times and needed a hand to reach a glorious, fuel-efficient future. And though several representatives laid into the CEOs and their companies, those bashes were little more than populist sound and fury, signifying nothing. Today’s hearing was by no means devoid of politicking or disingenuousness, but a new sense of urgency was palpable. And for good reason. With Senators still far from a consensus, the automakers and their sidekicks had to abandon their long-held preferences in favor of the best available outcome. After all, saying “bankruptcy is not an option” only works when everyone agrees with you.

The seeds of an eventual outcome were sown by the first witness. GAO Comptroller General Gene Dodaro testified that collateral and an oversight board would be necessary in any publicly-funded outcome. Dodaro agreed with Chairman Chris Dodd (D-CT) that there was nothing in the Troubled Asset Relief Program (TARP) specifically preventing a manufacturing bailout. What’s more, the Federal Reserve has the authority to issue loans

Nardelli, Mulally and Wagoner must have felt considerable relief. Straight out of the gate, the question “if” was conspicuous by its absence. All conversation centered on “how.” In later testimony, all three CEOs agreed to any form of oversight the government wanted to impose short of a 350 lbs. minder. On the table: a 1979-Chrysler-style board or a single “car czar,” as suggested by Sen Chuck Schumer (D-NY). Yeah, sure, whatever.

And then the issue of collateral reared its ugly head. As in “what can you give us if we give you $34b?” The issue was discussed at great not to say interminable length. As the scope of Detroit’s indebtedness was examined, it became clear that the auto execs couldn’t promise anything more than some level of debt seniority.

Since everyone in the hearing room had agreed in principle to a government oversight body, the questions soon turned to restructuring and long-term viability.

Chrysler was treated to a withering analysis by (among others) Sen Bob Corker. The Tennessee republican pointed out that part of Chrysler’s viability plan depended on “getting married” to some other firm. Though Nardelli insisted that this meant getting contract work building Routans and Titans, Corker dismissed the equivocation saying “nobody alive thinks Chrysler is viable on its own.” He noted ChryCo is a “portfolio company” in a private equity fund that refuses to rescue it. This highly necessary statement of the obvious eventually brought back discussion of a possible GM-Chrysler “merger.”

Nardelli jumped on this. He trumpeted the fact that any such a merger would save $10b to $20b per year. Wagoner agreed that savings were there, but said that short-term cash flow needs had taken priority over the merger. When asked if they would support a merger if it was a condition of loans, Nardelli said that even though his job would be “the first to go,” he was willing to make that sacrifice to save the company.

This unexpected display of honor was a subtle but powerful tipping point in the proceedings. It was easily the most public display of vulnerability by any of the executives. For the first time, there was a real understanding that Detroit was no longer negotiating, but supplicating.

Not long after this astonishing display, Sen Corker again had the floor. He worked steadily towards a compromise based on reality. He pointed out that Gettelfinger could not force his union brothers to accept any sacrifices unless “bankruptcy is the endgame.” His solution: force the UAW to reduce its labor costs to transplant levels and turn at least half of VEBA into equity and get GM bondholders to drop their debt at 30 cents on the dollar by March 31, at which point the federal government would assume debtor-in-possession financing for a reorganization. He also recommended that Chrysler merge with GM.

This appears to be the consensus exiting the meeting. Which means that Cerberus faces a choice of either liquidating Chrysler or merging with GM. Ford will have to survive until retooling loans come available, although there is some chance they’ll get a small credit line with some restrictions.

Meanwhile, General Motors and the United Auto Workers face about 30 years worth of necessary change in just under four months, still absent any guarantees that they’ll even survive that long. There will be further testimony at tomorrow’s hearings before the House Financial Services Committee. TTAC will be watching.

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  • CamaroKid CamaroKid on Dec 05, 2008

    Regarding the handful of posts that say Nardelli > Wagoner... And post merger Nardelli should run the GM/Chysler show... WTF Nardelli was FIRED from GE Nardelli was FIRED from Home Depot and Nardelli will be FIRED from Chrysler. It took Rick over 10 years to wreck GM, Nardelli wrecked the Depot and Mopar in about 24 months. Yes he is much more efficient then Rick... He wrecks companies FAST... As a CEO he sucks... wherever he lands after he leaves Chrysler... SHORT that company... you will make a MINT!

  • TireGuy TireGuy on Dec 05, 2008
    RetardedSparks : December 5th, 2008 at 10:10 am I am really surprised all 3 of these guys keep getting lumped together. They are 3 completely different situations: 1) Chrysler is private, and they coincidentally want exactly the same amount of money that cerberus paid for them. They are the least viable of the 3 by any measure. This is a no brainer - they die. Because they are such a small player at this stage the “ripple effects” would be the least threatening. GM and Ford are private as well - only with the diference not being owned by one shareholder alone. But the shareholders of GM and Ford would have the same benefits like Cerberus, on a total scale at a larger amount. Regarding the ripple effect - this thinking prevailed for Lehman Brothers as well. Do not underestimate the effects on Suppliers supplying also GM and Ford. 2) Ford doesn’t actually want any money. If anyone has tagged along because GM’s trouble has made free money available, it’s Ford, not Chrysler. They have viable plans with demonstrated results. I think they will decline to participate if the pound of flesh extracted in return is too great. Due to the downturn in the market, Ford will have no chance to survive this without loans, even if they have a plan. Read their plan, and the sales assumptions for the US, and you will know .. 3) GM needs cash now if they have any chance of surviving. I think they will get $4B to make it through Jan, and then the next administration will keep them on life support until a forced reorg plan can be worked out. I believe it it either 18bn now or nothing. it would look ridiculous if the Republican congress would at this stage approve 4 bn as a loan with the argument, that after 20 January Obama shall decide. No way.

  • Zerocred So many great drives:Dalton Hwy from Fairbanks to the Arctic Circle.Alaska Marine Highway from Bellingham WA to Skagway AK. it was a multi-day ferry ride so I didn’t actually drive it, but I did take my truck.Icefields Parkway from Jasper AB to Lake Louise AB, CA.I-70 and Hwy 50 from Denver to Sacramento.Hwy 395 on the east side of the Sierras.
  • Aidian Holder I'm not interested in buying anything from a company that deliberately targets all their production in crappy union-busting states. Ford decided to build their EV manufaturing in Tennessee. The company built it there because of an anti-union legal environment. I won't buy another Ford because of that. I've owned four Fords to date -- three of them pickups. I'm shopping for a new one. It won't be a Ford Lightning. If you care about your fellow workers, you won't buy one either.
  • Denis Jeep have other cars?!?
  • Darren Mertz In 2000, after reading the glowing reviews from c/d in 1998, I decided that was the car for me (yep, it took me 2 years to make up my mind). I found a 1999 with 24k on the clock at a local Volvo dealership. I think the salesman was more impressed with it than I was. It was everything I had hoped for. Comfortable, stylish, roomy, refined, efficient, flexible, ... I can't think of more superlatives right now but there are likely more. I had that car until just last year at this time. A red light runner t-boned me and my partner who was in the passenger seat. The cops estimate the other driver hit us at about 50 mph - on a city street. My partner wasn't visibly injured (when the seat air bag went off it shoved him out of the way of the intruding car) but his hip was rather tweaked. My car, though, was gone. I cried like a baby when they towed it away. I ruminated for months trying to decide how to replace it. Luckily, we had my 1998 SAAB 9000 as a spare car to use. I decided early on that there would be no new car considered. I loathe touch screens. I'm also not a fan of climate control. Months went by. I decided to keep looking for another B5 Passat. As the author wrote, the B5.5 just looked 'over done'. October this past year I found my Cinderella slipper - an early 2001. Same silver color. Same black leather interior. Same 1.8T engine. Same 5 speed manual transmission. I was happier than a pig in sh!t. But a little sad also. I had replaced my baby. But life goes on. I drive it every day to work which takes me over some rather twisty freeway ramps. I love the light snarel as I charge up some steep hills on my way home. So, I'm a dyed-in-the-wool Passat guy.
  • Paul Mezhir As awful as the styling was on these cars, they were beautifully assembled and extremely well finished for the day. The doors closed solidly, the ride was extremely quiet and the absence of squeaks and rattles was commendable. As for styling? Everything's beautiful in it's own way.....except for the VI coupe....it's proportions were just odd: the passenger compartment and wheelbase seemed to be way too short, especially compared to the VI sedan. Even the short-lived Town Coupe had much better proportions. None of the fox-body Lincolns could compare to the beautiful proportions of the Mark V.....it was the epitome of long, low, sleek and elegant. The proportions were just about perfect from every angle.