2009 April 01 Wednesday
Obama Bluffing On General Motors Bankruptcy?

Holman Jenkins of the Wall Street Journal argues that Obama will not go thru with it and put GM into bankruptcy.

President Obama rightly says "sacrifices" must be made if GM is to emerge as a viable company. But there's one sacrifice he won't make: his re-election chances, by leaving the fate of the UAW truly up to a bankruptcy judge.

Keep that in mind amid the defenestration of Rick Wagoner, who was not as popular with UAW Chief Ron Gettelfinger as Mr. Wagoner's replacement, Fritz Henderson. Keep that in mind amid reports the administration favors a "quick and surgical" bankruptcy. It's a bluff. The same administration that inserted itself into GM's corporate governance to order the resignation of a CEO is hardly likely to defer to the prescribed legal order for a failing company, namely bankruptcy. Even a "prepackaged" filing runs too much risk of a judge imposing more "sacrifice" on the UAW than the administration is prepared to tolerate.

During the Delphi bankruptcy UAW hourly labor rates got slashed. Does Obama want to save GM and Chrysler UAW workers from this fate? One big problem: GM and Chrysler (and Ford for that matter) can not compete in the long run unless their hourly rates go below Toyota's in the US. The Big (and shrinking) Three must compete with all the foreign transplants and cheap cars imported from other countries. Chinese car makers are on the horizon. The Big Three need much lower labor costs or they will not compete.

Can a prepackaged filing protect the UAW? Will the prepackaged filing just allow shutting down lots of dealers while also shafting debt and equity holders? If the UAW doesn't take a much bigger hit then all the losses by dealers, stockholders, and bold holders won't prevent further market loss and another trip into bankruptcy.

The Wagner Act and state-level dealer franchise laws are both products of government and two of the biggest obstacles to a Big Three turn-around.

Investment banker Wilbur L. Ross Jr. gives a GM bankruptcy about 50:50 odds. That's a pretty good interview of him.

Share |      By Randall Parker at 2009 April 01 10:42 PM  Economics Labor

Stephen said at April 2, 2009 2:00 AM:

Randall said: "The Wagner Act and state-level dealer franchise laws are both products of government..."

No they're not, they're products of political fund raising.

Wolf-Dog said at April 2, 2009 8:36 AM:

One hidden variable in this decision, is that the unions are probably worried that if the auto industry goes 100 % electric, then in the long run there will be less jobs for them. This is because:
1) Once you remove the battery, the pure electric car would be far simpler to manufacture than a gasoline car, since there are a lot less moving parts in the electric cars, no radiator, no gear box, no transmission, no engine oil, no exhaust, no fuel system, etc.
2) And pure electric cars can last 50 years if you change the cheap electric motor and the tires.
3) Electric cars will need minimal maintenance and very few repairs, The repair shops and garages are actually a hidden part of the auto industry, and this sector probably contains many thousands of jobs benefiting from it.

If GM goes bankrupt, this will open the way to establish a new American industry that would be 100 % electric.

Ned said at April 2, 2009 11:56 AM:

Will GM go bankrupt? Who knows? One thing is sure - the Obama administration now owns the GM problem. Now that Obama has kicked out the old CEO and a bunch of board members and hand-picked the new CEO, future answers for GM will have to come from Washington, not Detroit. If, as it appears, the company is not close to being fixed, then Obama will have to keep shoveling in billions of taxpayer dollars or take the responsibility for the loss of over 100,000 jobs. And this just seems to be tha start of the government's efforts to choose the leadership of private companies. Look at this:

"Days after GM's CEO Rick Wagoner was forced out by the Obama administration, Treasury Secretary Timothy Geithner left open the possibility that such moves could happen again.

In an interview with CBS Evening News anchor Katie Couric, Geithner acknowledged the government has had to do "exceptional things" citing AIG as well as Fannie Mae and Freddie Mac.

"We have changed management aboard," he said. "And where we've done that, we've done it because we thought that was necessary to make sure these institutions emerge stronger in the future."

So Geithner and Obama like this sort of thing. Great! Obama has been a law professor, politician and "community organizer" for almost all of his career, and Geithner worked as a consultant for Kissinger and Associates for three years before becoming a government employee. So given their vast private sector experience, who better to select the captains of American enterprise? No doubt friendliness toward unions, minorities and the Democratic party will be major selection factors for wannabe CEO's. Forget about profitability and shareholder value - those are outdated concepts when BHO is always ready to step in and bail you out from your bad decisions. This is what happens when ideologues rather than pragmatists try to run the show. So welcome to the brave new world of GM - Government Motors - Barack Obama, Chairman of the Board. And remember to call the White House when your GM jalopy won't start. Ask to speak to the man in charge.

Palais said at April 2, 2009 3:14 PM:

A bunch of f'n amateurs. Actually, they're pretty lucky that no one else understands exactly what's going on with the world and national economy. Otherwise, this might be the shortest administration on record.

Aki_Izayoi said at April 2, 2009 7:00 PM:

I am not too worried about those people losing their jobs, Wolf-Dog, because there are ways of dealing with it. For example, see this

"The headline unemployment rate in Sweden is only 5-5.5%, but this number is extremely misleading as it only includes a small number of the people who the government pays not to work. Many unemployed are sent to so-called "labor market political activities" who have no meaningful purpose then to reduce the headline unemployment number. Including them, unemployment is 8%. And if you also include the enourmous number of early retirees and people who live of sickness benefits, the real unemployment rate is more like 25% rather than 5%. The number of early retirees are 540,000, more than double the number of officially unemployed.

So why not just put them in "labor market political activities." Why not do that to everyone who gets laid off from the big three?

Wolf-Dog said at April 2, 2009 8:36 PM:

Then, maybe it is good to let GM go bankrupt. Then the Government can seize GM and force it to become and electric car company.

Here is the latest video of Project Better Place that will install charging pods for electric cars in every street :

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