Christmas came early to Detroit this year.
The Scrooges in Congress told Detroit no. But that jolly guy in the Oval Office decided that even though carmakers had been naughty, he was going to be nice.
Before those wacky guys in Detroit start squealing for joy at their good fortune, we’d better read the fine print.
With a nod and wink, the President told G.M. and Chrysler that by no later than March 31, the automakers were required to make “meaningful progress” on “plans” for restructuring their debt and becoming profitable enterprises. If they don’t make “meaningful progress,” then they have to give the money back.
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Hardly Talking Tough
I’m sure glad our President has an MBA from Harvard. He really drives a hard bargain.
These conditions are just as binding as the promises by the major banks to start lending once they got their hands on billions in TARP monies. Instead of lending, banks like Goldman Sachs and JP Morgan Chase are using our money to pay themselves billions in bonuses … again.
Playing along with the Christmas ruse, G.M. officials said the President’s generosity with our money would “allow us [G.M.] to accelerate the completion of our aggressive restructuring plan.”
G.M. is reeling from almost $73 billion in losses since 2004 and a 22 percent slump in U.S. sales this year, while the drop at Auburn Hills, MI-based Chrysler is 28 percent, the steepest among the major automakers.
The Other Side of the Deal
In exchange for the money, the automakers must provide warrants for non-voting stock, accept limits on executive pay, give the government access to financial records and not issue dividends until the debt is repaid. The government will have the authority to block transactions larger than $100 million.
Aside from their multitude of creditors and the inability to make cars that Americans really want to buy, the most immediate problem faced by Detroit is the UAW.
Union leaders applauded the President’s holiday spirit, and mouthed their commitment to work with the companies to make them more competitive. But there is also nothing in writing that binds the unions to make the kinds of concessions that will allow the automakers to legitimately compete with the non-union U.S. operations of Honda, Toyota and Nissan.
Without actual concessions from the unions, federal aid to Detroit is like trying to put a band-aid on a bullet wound.
The Only Panacea
Even with the largess of this gift from the American people, the automakers are simply putting off the inevitable.
Chapter 11 reorganization through the Bankruptcy Courts is the only way the automakers will achieve long-term survival. Bankruptcy will not only give them relief from their crippling debts, but a real opportunity to become lean and truly competitive.
Instead of bailing out the automakers, I’d like to see the federal government spend the same money developing and building for fuel efficient modes of transportation that will allow us to make real strides towards genuine energy independence.
Merry Christmas, Detroit!
John Cohn is a senior partner in the Globe West Financial Group[ based in West Los Angeles. He may be contacted at www.globewestfinancial.com
