Academic

Previewing the Auto Bailout Reports

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

In exchange for their initial loans, GM and Chrysler are obligated to provide the government with reports about their solvency and restructuring plans by tomorrow.  The news isn't particularly reassuring:

• Rather than a car czar that will read the reports, there will be a car committee, including the Treasury Secretary, Larry Summers, a union rep, and a host of others.  The optics on this aren't very good, and suggest that the auto companies aren't going to be overseen too rigorously; the committee is too big.  Maybe the administration has concluded that the economy can't handle a bankruptcy, and so is reducing the chance that an individual czar will go rogue and tongue-lash the companies into political oblivion.  Bloomberg:
  • The task force on autos will include officials from the Treasury, Labor, Transportation, Commerce and Energy departments, as well as from the National Economic Council, the White House Office of Energy and Environment, the Council of Economic Advisers and the Environmental Protection Agency.
• GM is playing its impending report - which will be 900 pages long - as an effort to get labor costs under control.  It wants more money, too.
• Chrysler, consistent with its private equity ownership, wants a deal, either with Fiat or someone else.  No deal will be in place by tomorrow.  So it is basically saying: we are insolvent, sure, but we might still be a merger prospect.
• My tentative view: this shows some of the problems with an administrative scheme that insists on quick movement in exchange for big dollars.  What if instadeadlines aren't just unrealistic, but downright counterproductive?  Requiring the report now, and a solvency determination by the end of March ... GM and Chrysler won't be solvent or fixed by either deadline, which seems to undermine the whole program.  What's happening now is setting up promises that won't be kept.  And I fail to see the policymaking advantage in that.

Full post as published by Conglomerate on February 16, 2009 (boomark / email).