Dan

Calabrese

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February 19, 2009

GM: Know What? That $12 Billion We Asked For? Let’s Just Make It $18 Billion $30 Billion!

Wow. General Motors and Chrysler are coming back to the federal government and asking for more money. Who would have thought?

After two months of supposedly working out their viability plans, GM and Chrysler are now issuing reports that don’t make major progress on a single serious issue. Why is this happening? Simple. The terms of the original bailout were that they had to show viability by March 31, or the federal government would call in the original loans and force them into Chapter 11.

No one took that requirement seriously, because no one believes for a second that President Obama will call in the loans, regardless of how preposterous the “viability plans” are. When former President Bush declared all the meaningful performance measures to be “targets” rather than requirements, it was easy to see how this was going to turn out.

In a development as predictable as Monday following Sunday, Detroit’s Teetering Two are bringing their plummeting sales figures back to Washington to ask that the $17.4 billion already committed to propping them up be boosted to $39 billion. What’s more, they have reached an agreement on “givebacks” with the United Auto Workers that leaves wages exactly where they are, continues to pay some laid off workers not to work and does nothing to settle the question of who will bankroll the Voluntary Employee Benefits Association, through which the UAW supposedly takes over retiree health care, albeit with money from GM that GM obviously does not have.

It gets worse. Much worse. Bondholders have balked at accepting GM and Chrysler stock in exchange for debt relief, apparently suspecting for some mysterious reason that the value of GM and Chrysler stock is less than robust.

And it gets worse still, though not unexpectedly, in the sense that sales have tanked even more seriously than last year.

GM, which said in November that it needed $12 billion in government aid to survive, then upped the amount to $18 billion in just two weeks, now says it actually needs $30 billion.

Try this: Go to your banker. Tell him your company is in financial distress and your sales are terrible. Ask to borrow some money. Go back two weeks later. Tell him you’re in even worse shape than you thought, so you’d like him to loan you even more money. Go back five weeks later . . .

Only the federal government would throw good money after bad to this level of insanity.

The fact that Chrysler now says it needs $5 billion to survive, whereas in December it said it would come back asking for no more than an additional $2 billion, almost seems like an afterthought. Even many auto industry apologists don’t pretend Chrysler is still viable, but Washington is famous for sneaking a little extra money into bills already larded up with waste.

This has to stop. But it won’t.

The UAW, the bondholders and – in all likelihood – company management have not produced a serious viability plan because there is no hammer forcing them to do so. Does anyone seriously believe the administration will reject this plan and force GM and Chrysler into Chapter 11? How would President Obama explain that $800 billion we don’t have is absolutely essential to save American jobs, but $30 billion to prop up an industry whose failure absolutely would create a job carnage is simply too expensive?

He can’t. GM and Chrysler could have turned in a cocktail napkin with “make gooder cars” written on it and Obama would have given them the money. The administration didn’t even decide until last week who was going to oversee the viability plans, which sent the unmistakable signal that there would be no oversight.

The establishment power structure in Michigan is once again gearing up to plead, cajole or guilt-trip Washington into handing over the money, and will once again breathe a huge sigh of relief when the money is handed over as per usual.

And Michigan’s entire economic structure will continue to rely on the outdated, dysfunctional business model of companies who can’t control their costs, can’t sell their products and can’t satisfy their creditors – but can’t be allowed to fail because we need them so very much.

Sigh.

© 2009 North Star Writers Group. May not be republished without permission.

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