Editorial: Bailout Watch 287: Executive Orders

Ken Elias
by Ken Elias
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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  • PeteMoran PeteMoran on Dec 13, 2008

    @ digitalsoul I'm not trying to defend the GOP, but Shelby/Corker's actions are not inconsistent with what they said in hearings the week previous. Corker singled out Cerberus for (probably) looking to get Chrysler a hand-out long enough to offload that pig. He singled out the UAW to understand that if your member's employer fails, you got nothin'. He wanted the UAW to understand that bringing forward the 2011 concessions was probably essential. Without agreement ahead of bailout, he understood balances of negotiating leverage would change and there was potential for things to fail. The Democrats appear to have chosen to ignore those concerns in the presentation of their bill.

  • MgoBLUE MgoBLUE on Dec 15, 2008
    Mikey: +1 Executive Compensation needs to be brought in line with something... Something other than "Late '90's Big 3 - Masters of the Universe". And the other white-collars should be ready to swallow a 20% salary reduction and start contributing for half of their health-care coverage. Let's see what that does to new vehicle sales in SE Michigan? 12 million vehicles becomes 9 million vehicles, or less...
  • Redapple2 Cadillac and racing. Boy those 2 go together dont they? What a joke. Up there with opening a coffee shop in NYC. EvilGM be clowning. Again.
  • Jbltg Rear bench seat does not match the front buckets. What's up?
  • Theflyersfan The two Louisville truck plants are still operating, but not sure for how much longer. I have a couple of friends who work at a manufacturing company in town that makes cooling systems for the trucks built here. And they are on pins and needles wondering if or when they get the call to not go back to work because there are no trucks being made. That's what drives me up the wall with these strikes. The auto workers still get a minimum amount of pay even while striking, but the massive support staff that builds components, staffs temp workers, runs the logistics, etc, ends up with nothing except the bare hope that the state's crippled unemployment system can help them keep afloat. In a city where shipping (UPS central hub and they almost went on strike on August 1) and heavy manufacturing (GE Appliance Park and the Ford plants) keeps tens of thousands of people employed, plus the support companies, any prolonged shutdown is a total disaster for the city as well. UAW members - you're not getting a 38% raise right away. That just doesn't happen. Start a little lower and end this. And then you can fight the good fight against the corner office staff who make millions for being in meetings all day.
  • Dusterdude The "fire them all" is looking a little less unreasonable the longer the union sticks to the totally ridiculous demands ( or maybe the members should fire theit leadership ! )
  • Thehyundaigarage Yes, Canadian market vehicles have had immobilizers mandated by transport Canada since around 2001.In the US market, some key start Toyotas and Nissans still don’t have immobilizers. The US doesn’t mandate immobilizers or daytime running lights, but they mandate TPMS, yet canada mandates both, but couldn’t care less about TPMS. You’d think we’d have universal standards in North America.