Lots of news this morning on the automaker front: GM is officially filing for bankruptcy, and Chrysler seems set to exit its restructuring process after a judge issued approval for the car company's sale to Fiat. The latter news gives some reassurance to the former -- while these negotiations have been complex and uncertain affairs, it seems that the combined forces of the president's auto task force, the company's management, unions, and bondholders have been able to successfully execute their plans.
The real issue for many is cost; the government is going to have to add another $30 billion (on top of $20 billion already spent) to keep GM afloat while it executes its restructuring plans, including firing some 21,000 workers. Is this deal worth it? The administration argues that the the only other option would be a liquidation of the company, which would have left 60,000 workers jobless and visited collateral damage on the economy, hurting both the numerous suppliers and other industries that depend on their and their employees spending and hurting recovery by ending a huge chunk of our industrial base; Jon Cohn and Dean Baker both offer cogent defenses of the agreement. This arrangement isn't perfect -- it's damage control, but it's necessary.
Last night, the administration briefed reporters on its guidelines for investing in private companies; it's an issue since the government will hold a majority stake in New GM and also substantial holdings in Chrysler as well. Essentially, the administration expects companies to adhere to a set of up-front guidelines in exchange for the investment; from that point forward, the government will only use its shareholder rights to choose members of the board of directors and other major decisions, leaving day-to-day business to the management. All this comes with an attitude that the government should maintain this stake for as short a time as feasible, but government officials recognize that the longer the government owns a chunk of GM, the more profitable it is likely to be for the taxpayer. That tension will be one to watch as the automaker gets put back together, likely on a longer timetable than the 60 to 90 days that is currently being bandied around.
This comprehensive Times run-down takes time to romanticize GM's heritage as once (and future?) King of the American Auto Market. Hard to resist the nostalgia, but the only thing worth feeling sentimental about are the lost jobs. The sentimentality about the company is one of the reasons that American automakers didn't do a great job transitioning into the modern era. Another meme I'd throw some water on is the idea, expressed here by Marc Ambinder, that the administration's negotiating strategies represent some kind of "new capitalism"; in fact, the government has been relatively circumspect in restricting its actions to standard market tools, whatever folks on the right (and specifically, disgruntled bondholders) have to say.
-- Tim Fernholz
