Editorial: Bailout Watch 404: Crime of the Century?

The viability plans presented by Chrysler and GM to the US Treasury and the public yesterday signaled the end game. The plans amount to nothing more than begging for enough cash to stay afloat until the market turns upwards. Not only are the automakers’ arguments based on flawed assumptions about the US car market, but they singularly fail to address the fundamental problems that brought Chrysler and GM to their knees. The fact that anyone would take these pleas seriously indicates the simple triumph of fear and over common sense. You’d have to be willfully ignorant not to see these plans as the worst kind of cheap fiction. Well, maybe not so cheap . . .

Of the two submittals, Chrysler’s plan was worse. It was a non-plan. To start, Chrysler pointed to its reduction in warranty claims, its lower rate of recalls, and other “proof positive” of a turnaround in quality which justifies further Federal money into the money pit called Chrysler. Too bad all the quality rating folks like JD Power and Consumer Reports still rank Chrysler at or near the bottom.

And when the total number of rigs on the road sold in the last few years goes down, warranty payments should be reduced as well. Funny thing, Chrysler’s total sales have dropped about as much as their warranty claims in the last three years.

As for future vehicles? Nothing but speculative hype about future cars from Planet Gullible. And by the way, ChryCo’s cutting three vehicles previously destined for death (Aspen, Durango, and PT Cruiser). But there’s a new Grand Cherokee coming! And Fiat with its “not ready for American prime time” Euro cars. Perhaps Fiat should be talking to the Saturn dealers instead?

Chrysler’s first lien bank lenders have not agreed to any cuts whatsoever. Why would they? They’ve got priority over the government loans already. The UAW hasn’t agreed to the cut in the health care VEBA for retirees (same goes for GM too). And by the way, Chrysler needs an additional $5B to keep going.

The coup-de-jour: Jim Press said that the dealers stepped up in February and ordered 78k rigs—thanks to $2k of dealer cash. And who do you think paid for this channel stuffing? Hey, Jim, what happens in March when your 150-day supply of cars becomes 180 days? How big will the bribe be then?

GM’s plan was too late. It’s the plan that should have been implemented in 2005. Saab will return to Sweden—if the government there forks over the 17 kroner necessary. Otherwise Saab will be toast by the end of the month. Saturn and HUMMER will wither and die—unless Chindia gets tired of waiting for a C7 liquidation.

Don’t think so. India’s auto tycoons aren’t stupid; they’ve watched Ratan Tata drive Land Rover/Jaguar straight over the metaphorical bridge to nowhere. Mahindra & Mahindra has stopped making noises about entering the US with rough and tumble SUVs and chicken tax surmounting mid-size pickups. China may buy a US brand or they may not. If they do, GM will get pennies on the dollar, if not actually having to pay someone to make Saturn, Saab and HUMMER go away.

In fact, no matter what, GM’s going to have to pay to make its excess brands disappear. Wagoner faced the cameras yesterday and blithely assured reporters that GM would fight terminated dealer franchise dealer lawsuits on a state-by-state basis. All together now: who’s paying for that? And speaking of money . . .

GM said they need another $18B (on top of the $13B already received) to make the plan work. And that’s before we get to the UAW retiree health care issue, the cost of mopping-up Delphi, guarantees to suppliers, and god-knows-what-else. That doesn’t include the Section 136 loan money (none given so far) authorized and appropriated for “viable” auto companies and parts suppliers to improve fuel economy.

When does it stop? Or is that where? GM is also holding a gun to Europe, Canada, Britain, Thailand and Australia, extorting money to keep its operations going.

Truth be told, we don’t know the total bailout funding required. Figure $40B-$50B dollars as a lowball estimate. And that’s just short term misery extrapolated over five years (Comrade). Let’s not forget the US pension contributions due in 2013/2014. Or shall we?

This is bad craziness. Never mind the cost. Or the fact that the bailout is doomed to failure. Government money provided to private enterprise on this basis completely distorts the function of the marketplace. It rewards incompetence. It perpetuates incompetence. The bailout does nothing to address GM’s fundamental inability to sustain car brands with class-leading products. Nor can it. It is not the government’s responsibility to pick a winner in a free market. Nor is it the government’s responsibility to “save” a loser.