Tuesday, March 31, 2009

Obama aimed for the auto bailout sweet spot. Did he hit it?

President Obama's plan for the auto companies boils down to this: GM must get serious about streamlining itself -- after months of dawdling in hopes of a more generous bailout -- or face a structured bankruptcy; and Chrysler cannot count on any more federal aid unless it quickly merges with or sells itself to Fiat, the only automobile company interested in partnering with Detroit's third-place maker.

Chrysler was given 30 days but has wasted no time, as this report of a new partnership with Fiat formed on the same say as Obama's announcement shows.

GM can now see the handwriting on the wall clearly. The company's new CEO said Tuesday that bankruptcy by the end of the 60 days the President gave GM to get its house in order is now "certainly more probable." The United Auto Workers, which has stalled and waffled and only reluctantly made some concessions -- in the expectation that Democrats would stave off the inevitable -- now finally must face the inevitable with a hard deadline.

I argued back in November when the initial auto bailout proposal came up that a bailout was necessary, particularly of GM, for the sake of the wider economy, even though Detroit's repeated failures are infuriating. I also said that such a bailout "should be approached as if it were a Chapter 11 bankruptcy restructuring, with a special federal official...much like a bankruptcy judge, given wide latitude to force the companies and their employees' unions to downsize, reshape cost structures, and focus on a return to profitable operations." I think that's subtantively pretty much what Obama has done. We will see soon enough.

However, his forcing out of GM's long-time CEO, Rick Wagoner, may prove to be a mistake. I understand why he did it; with public anger at Wall Street big shots unabated and polls showing that big majorities of 10 Americans oppose the auto bailouts, he had to do something dramatic to hold GM and its management responsible in a highly visible way.

The trouble is that Wagoner's ouster sets the perception in concrete that the Obama Administration is now running GM and responsible for the outcome, whatever it may be. We can be sure that the UAW is not going down without fighting another round -- and that could mean mobilizing friendly Democrats and other unions to pressure Obama and Congress to go soft on what needs to be done at GM. If they succeed and Obama caves, it could mean very substantial additional sums of taxpayers' money funneled into GM while it still doesn't make itself fully competitive.

I hope that won't happen. Sp far, Obama is on the right track but needs to stay on it.

What do you think? Post a comment.


  1. Obama “Let me be clear: The United States government has no interest in running GM. We have no intention of running GM.”
    Bill Clinton "I'm going to say this again: I did not have sexual relations with that woman, Miss Lewinsky. I never told anybody to lie, not a single time; never."

    Ford has the vehicle "we want", Fiesta ECOnetic which gets 63.6 mpg and Volvo has every version in a diesel C30 hatchback (60.3 mph), S40 sedan (58.8 mpg), V50 wagon (58.8 mpg), XC60, XC70 (39.2 mpg).

    None of them are ugly, all of them especially Volvo associated with safety. And my 24 year old MB 300D has 300K miles on it to prove the longevity of diesel engines.

    Problem is because of US regulations, they can not sell them here.

    They are telling GM the kind of cars they can build (CAFE), they are telling them who can not run the company (Mr. Wagoner), they are telling them what the executives can or can not get as compensation... Now that the government has accepted to "honor" GM warranties, soon they will be telling them what kind of warranties they can or can not give.

    If telling a company "no you can not sell car here" is not stipulation, I don't know what is. And they had been doing that even when they were not giving money to that company.

    I wouldn't be surprised to see an "Obamobile" rolling off the GM plants to undercut Ford vehicles who have defied the bailouts so far. Next you know it, Ford will be begging the WH for some $, which would put Ford either out of business or on fast track to become next GM.

    The question of "Obamobile" is not "if", the question is "when" and if it would include a (mandatory optional) Rahm Emmanuel bobblehead doll that takes care of parking tickets.

  2. Good points. I can say that Volvo has cars I want if I could get them -- in particular that V50 Wagon getting 58.8 mpg diesel. I looked at a V50 a couple of weeks ago. Nice car, but this one got around 26 mpg highway.

  3. John, there is 2 reason why can not get that 58.8 mpg diesel.

    1. Tax on diesel
    2. Draconian environmental rules

    If Volvo wants to bring the diesel over to the US they have to spend millions for crash tests, EPA tests.

    When you add those costs to the 4-5 K more cost of the diesel, and the $1 tax on fuel, it is cheaper to drive a gas car.

    If a car is clean and safe enough to be driven in Europe, one should argue it is clean and safe enough to be driven in US. Just unburden the companies from the US tests and save them millions spent on re-testing.

    Knock the $1 diesel tax off.

    Watch the "affordable" diesels sell like hotcakes.