Bush considering ‘orderly’ auto bankruptcy

By Jennifer Loven
December 18 2008

WASHINGTON

The Bush administration is looking at “orderly” bankruptcy as a possible way to deal with the desperately ailing U.S. auto industry, the White House said today as carmakers readied more plant closings and a half million Americans filed new jobless claims.

With General Motors, Chrysler and the rest of Detroit anxiously holding its breath and waiting for a federal rescue, White House press secretary Dana Perino said, “There’s an orderly way to do bankruptcies that provides for more of a soft landing. I think that’s what we would be talking about.”

President George W. Bush, asked about an auto bailout, said he hadn’t decided what he would do but didn’t want to leave a mess for Barack Obama, who takes office a month from Saturday.

Bush, like Perino, spoke of the idea of bankruptcies orchestrated by the federal government as a possible way to go — without committing to it.

“Under normal circumstances, no question bankruptcy court is the best way to work through credit and debt and restructuring,” he said during a speech and question-and-answer session at the American Enterprise Institute, a conservative Washington think tank. “These aren’t normal circumstances. That’s the problem.”

Perino said the White House was “very close” to a decision — though she wouldn’t give a timetable. She emphasized there were still several possible approaches to assisting the automakers, including short-term loans from the Treasury Department’s $700 billion Wall Street bailout program.

The Big Three automakers said anew that bankruptcy wasn’t the answer, as did an official of the United Auto Workers who called the idea unworkable and even dangerous. GM said a report that it and Chrysler had restarted talks to combine was untrue.

House Speaker Nancy Pelosi said on Capitol Hill that grim new unemployment data heightened the urgency for the administration “to prevent the imminent insolvency of the domestic auto industry.”

The California Democrat said Bush has the legal authority to act now, and should attach the accountability standards that were included in a $14 billion House-passed and Bush-supported carmaker bailout that died in the Senate last week. That plan would have given the government, through a Bush-appointed “car czar,” veto power over major business decisions at any auto company that received federal loans.

Pelosi spoke after the government announced that initial claims for unemployment benefits totaled a seasonally adjusted 554,000 last week.

The comments in Washington came a day after Chrysler announced it was closing all its North American manufacturing plants for at least a month as it, General Motors and Ford Motor await word on government action. General Motors also has been closing plants, and it and Chrysler have said they might not have enough money to pay their bills in a matter of weeks.

Prices of GM and Ford stocks were down sharply today after the remarks out of the White House. Ford, unlike General Motors and Chrysler, is not seeking billions in federal bailout loans, but a collapse of the other two could hurt Ford as well.

Alan Reuther, the United Auto Workers’ legislative director, said the union urged the administration during a meeting this week to follow the provisions included in the House-passed auto aid bill.

Congressional aides in both parties who have been closely following the discussions suggested the talk of bankruptcy could be a tactic to extract more hefty concessions from the companies and union in exchange for granting short-term loans from Treasury’s financial industry rescue fund.

Perino said one factor preventing an announcement of action by the administration is that discussions continue with the various sides that would have to sign on to a managed bankruptcy — entities such as labor and equity holders in addition to the companies themselves.

A senior administration official said the talks between Bush officials and the Big Three and their stakeholders amount to information-gathering, not negotiating.

The White House has repeatedly emphasized its opposition to “disorderly bankruptcy” — presumably a Chapter 7 filing that would effectively shut down a company and require liquidation of assets. That has left on the table the possibility of forcing one or more automakers into a Chapter 11 bankruptcy, which allows a firm to keep operating while under a court’s purview.

Harlan Platt, who teaches corporate turnarounds at Northeastern University in Boston, said the government may be waiting for an offer of an ownership stake in the companies, much as it received in return for capital plowed into banks. “You really have to ask the question: If this is good enough for Wall Street, why isn’t it good enough for Detroit?” he said.

Today, spokesmen for Chrysler, GM and Ford generally referred to their previous comments that bankruptcy was not a workable solution. The car companies argue that no one would buy a vehicle from a bankrupt company for fear that the company might not be around to honor warranties.

“We continue to work with the administration to find a solution to this liquidity crisis,” said GM spokesman Tony Cervone.

Chrysler spokeswoman Shawn Morgan noted previous statements against bankruptcy by CEO Robert Nardelli. Financing for even a prepackaged bankruptcy would be difficult to get in the current tight credit market, Chrysler has said.

The National Automobile Dealers Association also spoke out against bankruptcy for car companies “in any way shape or form, orderly or disorderly, prepackaged or unpackaged, managed or unmanaged,” said spokesman Bailey Wood.

Bush said the auto industry is “obviously very fragile” and he is worried about what an out-and-out collapse without Washington involvement “would do to the psychology” of the markets.

“There still is a lot of uncertainty,” he said.

At the same time, the president said anew that he is worried about “putting good money after bad,” meaning taxpayer dollars shouldn’t be used to prop up companies that can’t survive the long term.

He revealed one other consideration — that Obama will become president in just over a month.

“I thought about what it would be like for me to become president during this period. I believe that good policy is not to dump him a major catastrophe on his first day in office,” Bush said.

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Writers Julie Hirschfeld Davis and Ken Thomas in Washington and Tom Krisher in Detroit contributed to this story.

Source

Auto workers rally in Jackson

Canadian Governments willing to help Auto Industry

Auto jobs are also being affected abroad as well.

Workers protest massive wave of job cuts

2 Comments

  1. I think not bailing out the auto intustries will greatly effect the U.S as a whole. Having many family members who work at Ford that are now laid off, makes it scary to even think about bankrupcy. Just today about 67,000 Chrysler employees lost their jobs. As one of the major job providers in America turning down the bailout plan will leave many people jobless and the senates will definitely regret turning it down. With the slim chance of President Bush allowing the bailout plan to exceed many auto industry workers hold on to the hope of keeping their job.

  2. The Frazier
    Auto and Economic Recovery Plan

    As an observer of the economic recovery efforts currently underway I must say I have not heard a single plan that seems to be working. We have funded banks that are not loaning money. We have a scared populace that won’t borrow money we have looming layoffs and worsening conditions. Not to mention the denial by executives getting bonuses and out right fraud that is being exposed by the failing markets. So here is the “Frazier Plan”

    I was ordering a Coupon to get my Digital TV converter for my analog set and realized this program could be the answer. Briefly the government is giving me a $40.00 coupon to purchase a $50 to $60 converter box. Then it occurred to me the government could do the same thing with autos. Think about it. Here is how I see this idea working in an auto environment.

    First rule the car must be built in the US.
    Second Rule the car must be rated at 30 MPG Hwy
    Third it can not cost more than $17,000.

    Each card carrying tax payer that is a US citizen could apply on line for a coupon valued at $8,000 to $12,000.

    The difference in the purchase price of the auto would be paid by the coupon holder, for example 20% of the purchase price.

    This brings in the rest of the private sector to start the economy moving.

    This plan does not prop up the auto makers waiting on the economy to turn around. What they need is sales. The proposed loans to the auto makers does not help the rest of the industry if no one is buying cars, and what about dealers, suppliers, shippers and lenders. The auto industry is large enough to completely jump start the economy.

    The tax payer is funding the whole thing anyway so why not let the tax payer be the principal beneficiary?

    GM has three models that qualify
    Ford has three models
    Chrysler has one
    Toyota has three

    Customers would visit their local show room to order the car they want. They can upgrade with their own cash as long as the car meets the mileage requirement.

    I estimate it will cost about 700 billion dollars. It will leverage another 700 billion in private money.

    It will reduce oil imports by about 1/3. So what are we waiting for? Send this on to your friends and to your congressman.

    The Frazier Plan

    Ed Frazier Author


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