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By Jeff Polhill
On Friday President Bush laid out his administration’s bailout to GM and Chrysler.
If your remember, GM and Chrysler had asked - maybe begged is a better term - for $14.3 billion financial bailout to stave off bankruptcies, as GM and Chrysler said they would run out of cash by year-end or shortly after. Ford said they were OK and had enough cash to sustain operations throughout 2009 but were requesting a $13 billion credit line just-in-case auto sales deteriorated further in 2009.
So on Friday Bush laid out his plan to help GM and Chrysler remain solvent through the first quarter of 2009. He commented that he did not want to have a potentially disastrous collapse of the automakers weighing on President-elect Barack Obama when he takes office January 20, 2009.
What is interesting about the bailout is that on Thursday of last week Bush and his press secretary had hinted that an “orderly” bankruptcy might be the best way to deal with the worsening financial problems of the automakers. A Ford Motor Co executive had stated that allowing GM and Chrysler to fail would cause immense problems for Ford also. He didn’t expand on his statement. So was the “orderly” bankruptcy something that Bush and his staff really considered as an viable option to a GM bailout and a Chrysler bailout or just a PR move to satisfy his own Republican Party and the majority of Americans who are unhappy with the 700 billion dollar bailout, $335 billion already on the books? We won’t really know.
What did the White House commit to? $17.4 billion in loans to GM and Chrysler, $3 billion more than what the automakers had requested - an early Christmas present with bonus. Some rules of the road were laid down for getting these loans. The automakers need to prove by March 31, 2009 that the initial loans do indeed allow GM and Chrysler to become financially solvent. There is going to be a loan officer, for want of a better term, to oversee the loans. Hm, what happened to the “Car Czar” Bush and Congress bandied about? - the great overseer of any bailout monies for the automakers. “Car Czar” certainly had a better ring to it. At the least “Car Czar” made it sound as though he or she would have much power and oversight. And what about requiring the United Auto Workers make wage concessions and cancel the jobs bank in 2009 that Bush and many Republicans were requiring earlier? Now the requirement is that the United Auto Workers agree to rework contracts by the end of 2009 that put union workers’ pay more in line with non-union auto workers in the U.S. and agree to more flexible job rules. (Note that UAW executives previously said that they willing to make some concessions to help out the ailing automakers but not until the current contracts expire in 2011.) One of the problems, certainly not the only one - take years of mismanagement for example - that the U.S automakers have in competing with the Japanese automakers is paying laid-off union workers 90-95% of their pay until the current contracts expire ,and paying wages that are considerably higher than what Toyota, Honda and other foreign automakers pay their American workers. The terms of the bailout agreement also include cutting executive salaries and bonuses and getting rid of the corporate jets.
So what the White house has given the the automakers is a short-term reprieve, one that Obama’s administration and a Democratically-controlled Congress will have to work out early on, and another burden on the taxpayer if GM, Chrysler and Ford cannot become profitable and weather the economic windstorm expected to continue throughout 2009.