THE PLANK MARCH 27, 2009
Sometime very soon, probably on Monday, we'll find out whether President Obama is prepared to keep Chrysler and General Motors going with further government assistance. And it looks like the answer is "yes," albeit with under some very strict conditions, following about a month of study by the administration's twelve-person task force. Here's what the Wall Street Journal has learned:
Interviews with task-force members indicate that the administration doesn't want to let General Motors
Corp. and Chrysler LLC slip into bankruptcy protection, a course
advocated by some critics of the industry. Instead, the task force is
expected to say that it sees viable futures for both GM and Chrysler,
but only if there are sacrifices from their managements, unions and
GM's bondholders. The team will also lay out a firm timeline for action.
The government is prepared to lend the companies more money. The two
companies have requested $22 billion more--including $9 billion for
the second quarter. But the task force may not disburse new aid
immediately, choosing instead to preserve that as leverage.
Obama himself previewed this approach during his online town hall on Thursday, explaining why he felt it necessary to sustain the industry despite its history of poor management.
I know that it is not popular to provide help to auto workers--or
to auto companies. But my job is to measure the costs of allowing these
auto companies just to collapse versus us figuring out--can they come
up with a viable plan? ...
If they're not willing to make
the changes and the restructurings that are necessary, then I'm not
willing to have taxpayer money chase after bad money. ...
is going to have to give a little bit--shareholders, workers,
creditors, suppliers, dealers--everybody is going to have to recognize
that the current model, economic model, of the U.S. auto industry is
It's hard to make a substantive judgment without hearing more details, but, broadly speaking, that approach certainly sounds sensible. And while many critics think govenrment has no business saving a dying industry, do keep in mind that this sort of plan is not exactly a "bailout" as commonly understood.
Nobody is talking about preserving the auto industry as it is today. Both Chrysler and GM were becoming smaller operations even before the current crisis. And they are going to keep getting smaller no matter what the government decides to do.
The question at hand is how quickly that transformation should take place, and under what legal and financial conditions. Although minimizing short-term economic pain is definitely a goal--as, by the way, it should be--so is the creation of a self-sustaining auto industry that contributes to a strong economy.*
*Update: Reworded the last sentence to emphasize that preserving the auto industry is important insofar as it fits into a broader strategy of economic development. A lot of people, I know, think that's not possible. But that's a discussion for another time. I also tweaked some prose earlier in the piece, because its meaning wasn't clear.