Editorial: Bailout Watch 287: Executive Orders
Earlier this month, in their search for bailout bucks for Detroit, Congress caved to the President’s insistence that legislators leave the $700b Troubled Asset Relief Program (TARP) alone. Last week, Congress failed to activate Plan B: hijacking the $25b funds they’d already allocated to the Department of Energy for “retooling” loans. At the eleventh hour, President Bush said, “Oh, alright then. Let’s talk TARP.” And so Plan C: the President of The United State will outline his plan to put up to $15b in play from the TARP monies. It’s a stunning about-face, whose details will be revealed on Monday. Those are the broad strokes. Before suggesting the presidential approach to Detroit’s debacle, let’s zoom in…
Congress’ bailout bill blew-up in the Senate, not the House, which gladly offered-up your money for a faulty plan. The Senate Republicans were not happy creating a powerless “car czar” to oversee the public purse. Senator Dick Shelby was right– the toothless bill would have become an endless payout to Detroit. Senator Corker offered the United Auto Workers (UAW) a deal to make it work. UAW Boss Ron Gettelfinger passed on “parity” with the transplants, as Corker demanded in his alternative legislation. Big Ron said they’d talk about it at their next contract round, in 2011.
And there you have it: proof positive that the UAW isn’t about to make a wholesale change in how they do business. If left in the care of an enfeebled car czar, they’d go along to get along, and nothing more. And now the UAW is banking on money from the TARP as a “holdover”– so they can maintain the status quo until a Democratic President and Congress can… maintain the status quo.
And this is just the union side of the equation. For some reason, GM CEO and Chairman of the Board Rick Wagoner is still in charge of the failed American automaker. Congress has bought Wagoner’s umpteenth “turnaround plan” without question. This despite the fact that its worst case scenario is too optimistic by half and there is nothing within it– nothing– that promises a necessary product and brand-related renaissance. As long as Wagoner’s administration remains, the possibility of GM making profits is– indeed remains– minimal.
So now the ball’s in President Bush’s court. Short of letting the free market exact its final determination (an inevitable reckoning), it’s time for a tough deal. In fact, President Bush has the opportunity now to craft the deal that needs to get done, recognizing the fact that GM and Chrysler are already bankrupt.
First, the President must demand that each company puts up collateral equal or greater to the loan amount advanced. Since no commercial lender will provide funds, and the government is using our money, we want protection. Especially as $15b represents a lifeline to future funding requests, not a solution to GM and Chrysler’s fundamental problems.
This caveat would force Chrysler’s collapse. This company has no collateral of value; existing lenders already have tied that up. Either Cerberus puts something else up of value, or it doesn’t. And that means lights out for the Pentastar. That’s a good thing for taxpayers; there’s no future for Chrysler on its own. Period. And ChryCo’s cratering will help GM and Ford survive.
Second, the President must demand that the UAW immediately end the JOBS Bank (not just suspend it). The JOBS Bank language effectively forces GM (and the rest of Detroit) to pay off workers with huge termination packages to leave their jobs when plants are closed. It’s the so-called “Attrition Program” agreed to by the UAW. I’m not against providing some money when jobs are lost, but GM needs to restructure now (again). It can’t afford big payouts to let labor go.
Third, the President must insist that GM begin negotiations to restructure its balance sheet. The Commander-in-Chief can force GM to provide a go-forward balance sheet and viable operating plan– by not advancing the total funds GM needs to survive until March. He can set January 15th, a week before President Obama takes office, as a deadline.
Basically, we’re asking GM’s highly paid bankruptcy advisory team to write the Plan of Reorganization (“POR”) today (without negotiation with creditors). This POR would illustrate – in a public document – exactly how GM can become a viable company. It would let outsiders comment on its validity and believability. It will tell all the parties where they will come out in the end. And it sets the stage for President Obama and Congress to make the final decision whether it’s better for GM to go through bankruptcy or not.
Lastly, the President should place all the usual terms and conditions about executive compensation, prohibitions on golden parachutes, no mergers/acquisitions and tough GAO oversight with weekly reporting.
I hope that President Bush doesn’t punt on his responsibilities with our money. Kicking the problem down the line to the next administration is an easy solution, but not the right one. The President needs to step up and start the end of the madness. He should set the stage for a real and meaningful program for a long overdue restructuring of GM. Chrysler is already dead, so why continue the charade? Ford, well that is for later…
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