Editorial: Bailout Watch 456: PTFOA to OK $22 Billion for Chrysler, GM
You’d kinda hope that the Presidential Task Force on Automobiles (PTFOA) would negotiate with Chrysler, GM, the United Auto Workers and GM’s bondholders down to the wire. After all, the actual deadline for the yes/no decision on the next round of bailout billions is March 31. So it kinda makes sense to hold their feet to the fire until the very last minute, forcing them to satisfy the conditions laid down by the first, $17.4b federal bailout. But nooooooo. Six days out from the deadline, the leaky ass quango known as the PTFOA has let slip the fact that they will, indeed, bless (a.k.a. “loan”) Chrysler and GM with $22B of your hard-earned tax dollars. Maybe more! But that’s OK, ’cause THIS TIME there will be strings! Timelines! Deadlines! The Wall Street Journal reports . . .
Interviews with task-force members indicate that the administration doesn’t want to let General Motors Corp. and Chrysler LLC slip into bankruptcy protection, a course advocated by some critics of the industry. Instead, the task force is expected to say that it sees viable futures for both GM and Chrysler, but only if there are sacrifices from their managements, unions and GM’s bondholders. The team will also lay out a firm timeline for action.
And now, the NSFW about how hard the PTFOA worked to get to the point where they’re happy to use federal money to [continue to] prop-up America’s zombie automakers.
In session after session in a warren of offices at the Treasury Department, the team has sat through tutorials on dealer financing, studied basic data and debated the future of U.S. car sales. They have spent days trying to understand the complexities of the hundreds of companies that supply the car companies with axles, seats and other parts.
Perhaps if they’d hired someone who already knew how the industry worked, they could have avoided those terrible all-nighters. As if that’s not enough of an insult to any industry worker’s intelligence, there’s more!
“It’s like a Rubik’s cube, trying to untwist it and trying to get all the colors to line up,” [Steven Rattner, a former journalist-turned-investment banker] said in an interview. “So we’ve learned a lot about how car dealers work, and how companies get paid when they sell a car to a dealer, and why there are a certain number of dealers more than are optimal. Have we learned everything? Of course not, but I think we are learning what we need to learn to do this job.”
So industry vets can work for forty years to gain enough knowledge to run a small business—successfully—in the automotive trade. But an investment banker and his boyz can get a handle on the entire industry in what, a month? Boy, they must be smart!
Mr. Rattner dismisses the idea that his team may not have enough auto expertise to tackle the job. “We are not trying to run car companies,” he says. He compares the work to what he and others have done in the private sector. “This is the type of investment decision that many of us on this team are used to making.”
Pride. Fall. Goeth. Rearrange. But don’t take my word for it. Here’s the WSJ’s report on the meeting between the PTFOA and Fiat, re: Fiat’s small car “alliance” with Chrysler.
Mr. Bloom focused on minute aspects of the business strategy, and Mr. Rattner, on how the deal would be structured. People on the Fiat team came away thinking that the task force’s questions betrayed a limited understanding of the industry. “It’s fair to say we walked out of the meeting and were a little unsettled,” says one member of the Fiat team.
If you’re thinking about forgiving the political appointees’ ignorance and laud them for, at least, standing apart and stepping back from the current meltdown, you know, to take the long term view, think again.
Several auto experts who’ve met with the panel say they’ve been struck by the group’s focus on trying to determine exactly when car sales will rebound. “They are absolutely concerned with the short-term, so it’s hard to see them grasping the medium or longer-term issues,” says Daniel Roos, an automotive expert at the Massachusetts Institute of Technology, who briefed the team in Washington on March 6.
I guess they’re listening to Deutsche Bank’s auto analyst, Rod Lache, who told the PTFOA to ignore the data. “This is a policy decision, not an economic one. One way or another, GM will have to be saved.” Of course they will! Because it’s all about jobs! jobs! jobs! Well, one job, anyway.
At the Chrysler Dodge truck assembly plant, located in nearby Warren, Mr. Rattner says, the importance of the task force’s work hit home. “At the end of all the numbers we are generating,” he says, “there are real people.”
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I think that giving Chrysler and GM taxpayer money is helping foreign automakers more than it helps Chrysler and GM. Chrysler and GM can't sell cars because they are overpriced; they want more money for them than they are worth. By subsiding these companies the government is propping up these prices, allowing the foreign manufacturers to set their prices higher than they otherwise might. Thus the subsidy confers no advantage on GM and Chrysler in terms of increased sales, and foreign manufacturers make more profit.
I know this is an enthusiast site and therefore its members care to some degree about the general auto biz, however it's also helpful to see the issue from the policy/econ side. The gov is currently trying to prop up employment and spend as much as politically feasible to avoid a deflationary spiral, the result of which is a collapse of the capital system. Given the number of jobs in the industry, it may not be poor spending if it's keeping a substantive number of people employed. So, yes it's misleading to call this the task force on autos, when it's more of an econ task force that just happen to be looking at the major businesses making auto.