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Politics rule General Motors run to bankruptcy

Tuesday, April 14, 2009

Daniel Howes

Commentary: Politics rule General Motors run to bankruptcy

General Motors Corp.’s headlong rush into bankruptcy looks increasingly pre-ordained — or so the strategic leakers inside the Obama White House and the president’s auto task force want jittery bondholders and the United Auto Workers to believe.

The process will be "quick," we’re told, perhaps as short as two weeks. There will be a "good" GM cleansed of laggard brands and legacy obligations to real people with real families. All that detritus will be dumped into a "bad" GM, from which legions of bankruptcy lawyers will book record fees dismantling decades of promises now proven to be false ones.

The words "quick" and "GM" are mutually exclusive. Add bankruptcy, an inter-connected supply chain, union viability, myriad investors protecting their interests, the government’s demonstrated willingness to sacrifice principle for expediency and it’s laughable to suggest GM’s dismemberment could be quick.

Look who’s doing the suggesting, folks. By all accounts, Team Obama’s auto task force is working hard; its top brass is traveling to Detroit, the coastal equivalent of a trek to Nepal; they’re on conference calls and interviewing suppliers, industry analysts and executives.

But they’re assuming three things neither they nor their boss can guarantee. First, that once inside some form of bankruptcy, the parties will submit to government demands. Second, that would-be buyers won’t abandon GM’s brands because the customers have choices, even American-owned ones.

And, third, that they’re right. Says who? You don’t need a Harvard MBA to see that none of the auto task force is experienced in manufacturing or the auto industry. Only Ron Bloom, a former dealmaker for the United Steel Workers, has legit cred with industrial workouts. The rest? Wall Street deal makers and career political hands.

What if they’re wrong? Not in their diagnosis of the problems and wild optimism besetting GM and Chrysler LLC, but in their certitude that GM in particular could emerge from a bankruptcy "wash," be viable and an industry meltdown would be averted.

An undeniable truth about the past decade or so in the auto industry is that the smartest people in the deal-making rooms have been consistently wrong about alliances, mergers, acquisitions (even though they happily collected the fees).

The Daimler-Chrysler deal was a nine-year debacle. GM’s alliance with Fiat SpA netted the Italians $2 billion to bolt. Ford Motor Co.’s acquisitions of Volvo and Land Rover are dismantled or nearly. Delphi Corp. still is bankrupt. And Cerberus Capital Management LP’s play for Chrysler is a disaster in just about every sense of the word.

The point is that President Barack Obama and his Treasury secretary have vested responsibility for fixing America’s automotive breakdown in people whose track records (and thin industrial background) should raise more questions than instill confidence. In their world, numbers and process make the deal, and doing the deal reaps the fees.

More, the solution for GM (and Chrysler, some two weeks from its government-imposed deadline to do a deal with Fiat or go bankrupt) is more likely to be a political decision made in the Oval Office than a series of tedious rulings by a bankruptcy judge in New York.

"This is a political choice," a ranking industry executive familiar with the situation tells me. "The now much smaller GM does not have the resources to support legacy liabilities."

The choice is stark, as the president hinted when he issued new deadlines for GM and Chrysler to achieve viable business plans. He can lobby to continue the flow of taxpayer dollars to GM and Chrysler because their failure would be catastrophic to a weak economy with rising unemployment.

The likely result, considering recent polling, would be a firestorm of political and popular backlash. Or he can risk backlash from organized labor and various wings of his own party by demanding deeper pension and health-care givebacks from the UAW — now and into the future.

Cars? This isn’t about cars or going "green." It’s about power politics, presidential prerogative and deciding who gets to pay the biggest price.

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