More On The Auto Plan
Things are moving fairly quickly on the auto company front. Within an hour or so of President Obama's announcement about two struggling automakers, Chrysler announced the framework of a deal with Fiat, while GM's new leaders immediately stepped into their positions. Clearly the President's call for Chrysler to find a merger partner or be forced into bankruptcy focused their minds a little bit.
Obviously, there is concern that a double standard is being applied to the auto companies when compared with the larger banks, and I agree. On the substantive merits of this proposal, however, I think Obama had few alternative options. Emptywheel, who lives in Michigan and has worked for auto companies in the past, had a good take.
...here's what Obama seems to be announcing today:
• Chrysler will be forced into a marriage with Fiat in the next month or be denied any additional aid--which will surely put it into bankruptcy
• GM (which failed to get the required concessions from the UAW and bond-holders) will have 60 days to come up with a new, more aggressive turn-around plan
• At the end of 60 days, the government may require a "quick rinse" bankruptcy (one month) to get GM's stakeholders to take their losses
Thus far, it's tough to tell whether this is a good plan or not. As far as Chrysler, they can't survive alone. So the forced marriage gives it one chance to avoid bankruptcy that otherwise seems inevitable. I don't think Fiat will take the deal, so I expect Chrysler to enter bankruptcy within the next month.
As for the GM plan, they are finally talking about dealer concessions (which a "quick rinse" bankruptcy would help, too), which was the element that everyone had thus far ignored. And some of this tough love with GM seems to be a logical next step given bond-holders' intransigence since December. GM had been, thus far, unable to get its bond-holders to accept the losses they had told GM, in November, they would take, so Obama is threatening to use a court to make them do so--followed by UAW concessions [...]
In other news, here are the assessments of the GM and Chrysler plans. They strike me as eminently reasonable assessments. My biggest complaint, thus far, is that the Administration does not mention "health care" in either of the assessments. They mention legacy costs, but not health care. So thus far, they seem unprepared to deal with the fundamental competitive disadvantage that we're asking our manufacturing companies to shoulder.
It seems to me that the UAW - and by extension line workers - have been making nothing but concessions throughout this ordeal. Heck, even Brian Kilmeade on Fox and Friends admitted that the salaries for domestic auto workers are in line with the Japanese, and the main differences come in health care costs. The facts are that manufacturing industries in this country remain at a competitive disadvantage because we are the only industrialized nation where employers are burdened so excessively with the cost of health care, and productivity does not fill the gap. So forcing dealers and bondholders to the table so that the costs of restructuring are shared makes sense, as does reforming health care to increase global competitiveness.
A few other parts announced by Obama were intriguing - he put a government guarantee on warranties of GM and Chrysler cars, which could help them keep customers should they fall into a quick rinse bankruptcy; he assigned a Director of Auto Recovery to "support the workers, communities and regions that rely on the American auto industry"; and he sought to revive the "cash for clunkers" proposal that has succeeded in other nations, particularly Germany, in boosting auto sales:
As he rolled out one last reprieve for the nation's troubled automakers, President Obama also restarted a legislative push that ran out of gas during last month's stimulus talks: a $10,000 rebate offer to car owners who traded in their old models for more fuel-efficient wheels.
The "cash for clunkers" plan was originally proposed by Sens. Dick Durbin (D-IL) and Tom Harkin (D-IA), at a total cost of about $16 billion. It was dropped from the stimulus amid GOP opposition, but Obama said today that he would "work with Congress to identify parts of the recovery act that could be trimmed to fund such a program and make it retroactive starting today."
Senate leaders sounded warm to this idea today. Increasing fuel economy at the low end by getting the biggest emitters off the streets actually does more to reduce greenhouse gas emissions than moving someone from a moderately efficient vehicle into a hybrid. So this makes some sense economically as well as environmentally.
I think a lot of people hope that the President would show the same tough love to the banking industry that he did with the auto industry today, and that is the main headline. However, there is an outline of how this can possibly work for the better for the auto industry and the workers who rely on it.