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the wheels fall off the wagoner

March 30, 2009

Senator Shelby has made it clear he wants GM and Chrysler to go bankrupt. Senator Corker is upset over President Obama’s heavy handedness with regards to the auto industry. Well, they can’t both be happy.

Let’s be clear about one thing. GM will eventually get all, or at least most, of the money they’re seeking. All the President wants to do is make sure they spend it wisely. That’s why Rick Wagoner is out and Fritz Henderson is now behind the driver’s seat. Henderson knows the task force will play a major role in GM’s ability to move forward. Wagoner was not as receptive to the idea of Washington telling Detroit what to do. Guess what? If Washington is footing the bill, they have every right to have a say in how GM spends it.

Chrysler, on the other hand, is not considered “too big to fail”, so the only way they’ll survive is if they consummate the marriage with Fiat, so they gain at least a foothold in a market outside of North America. It looks as though Chrysler is desperate enough, that that’s exactly what they’ll do.

Please remember that neither company is failing because union wages are too high. Yes, legacy obligations and health care are dragging American automakers down, but there’s more to it than that. GM lost tons of money on bad loans by Ditech, a branch of GMAC, and Chrysler had all it’s profits sucked dry by Dalmer-Benz before they dumped it.

So while everyone is suffering, President Obama is dishing out what some have called “tough love”. Republicans might not love it, but at this point: tough.

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6 Comments leave one →
  1. bkm permalink
    March 30, 2009 6:48 pm

    Didn’t GM sell GMAC to Cerberus in 2006, well before Ditech mortgages started going bad? As far as I know, GM kept only some auto loans.

  2. March 30, 2009 7:02 pm

    Cerberus owns 51 percent of GMAC.

  3. Jeanne permalink
    April 1, 2009 9:03 pm

    Although the issue breaks along party lines, I think it’s more interesting to look at it just on its merits. Which is better?

    GM & Chrysler go bankrupt. Lot’s of people lose their jobs and a bankrupcy judge decides what retirees, union members who are currently working, and bondholders get. Collateral damage – suppliers and such also get hurt. Everyone learns that these were poorly managed companies and for generations business school students will study these companies to understand all the many, many ways they went wrong. In the short term, it’s pretty awful. In the long term, it might be instructive.

    The government gives Chrysler and GM money, but effectively takes them over. Government tells Chrysler, go get yourself bought by Fiat. Government tells GM to “re-org” based on the government’s understanding of what is best – This is who your CEO will be. This is the kind of cars you will make. People keep their jobs (at lower wages and benefits). Bondholders get a much worse deal than promised (equity instead of the bonds…although better than they might do in bankrupcy). Management, well, they now work for Washington. In the short-term, this is definitely the better scenario. But what about the long-term?

    Is there any world experience that suggests that governments are better at producing cars than car companies? Environmentalists might love this in the short-run (you will now make green cars – which you sould have been doing all along – and the world will be a better place). But, it sets up a pretty dangerous precedent. What happens when we’re back to a Republican President, say in twenty-five years (it might happen…) and she says (again, it might happen!), “the oil companies are hurting; you need to make gas guzzlers to support them. No more green cars.”

    President Obama has set up a scenario where this is reasonable behavior of the executive branch. Before you say it’s okay, ask yourself it you’d be okay with a Republican president using his powers thus.

  4. April 2, 2009 12:17 am

    Neither scenario is good. I’m pretty sure a Republican president would go with the bankruptcy option.

  5. April 9, 2009 8:44 pm

    This whole mess is due to the deregulation money grab that had been set up for the banks. The lobbyist probably did this behind the scenes at plush resorts, expensive dinners and on $350 per round golf courses.
    They now have their hand out for cookies after they cleaned out the jar????
    STOP THE MADNESS!

  6. August 30, 2009 10:36 pm

    How long have you been blogging…your good at it.

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