Former car czar says auto bailouts saved Michigan

March 10, 2010

Former car czar says auto bailouts saved Michigan

Detroit News Washington Bureau

New York — Former White House auto czar Steve Rattner said Wednesday the state of Michigan and the city of Detroit would have been forced into bankruptcy if the Obama administration hadn’t rescued General Motors and Chrysler last year.

Detroit almost "certainly would have gone bankrupt," said Rattner, who spoke at a bankruptcy conference sponsored by Dow Jones.

"The state of Michigan would have declared bankruptcy."

He said the Obama auto task force was deeply worried about the impact of the liquidation of GM and Chrysler and municipal bankruptcies.

Rattner said the government’s $50 billion investment in GM is now worth $40 billion to $45 billion– a vast improvement over prior estimates that suggested the government would lose $20 billion on its bailout of the Detroit automaker.

Rattner based his revised estimate on GM’s better-than-expected performance and the higher value of assets remaining in the old GM.

Some Wall Street analysts also have upped their estimate of what GM will be worth when it holds an initial public stock offering this year or next.

The new GM has a much stronger balance sheet with lower fixed costs.

The Treasury Department swapped about $42 billion of its $50 billion investment for a 61 percent equity in the company. GM has vowed to repay the remainder of its $6.7 billion in government loans by June. It also holds $2.1 billion in preferred stock.

Rattner has defended the decision to save the two automakers, noting the hundreds of thousands of jobs that would have been lost if the government had not stepped in.

He noted that GM had taken a "kinder, gentler" approach to cutting its dealers by giving them 18 months to close their doors while Chrysler used a "guillotine" to cut dealers, giving one quarter of its dealers just 30 days to close their doors.

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