USA - AUTO INDUSTRY
GM and Chrysler have staved off collapse thanks to billions of dollars in government bailout cash. But with their future viability in doubt, Washington is unlikely to keep filling their tanks. Bankruptcy is on everyone's lips.
GM and Chrysler have acquired a knack for staving off the grim reaper. But their days of artful dodging may finally be numbered; the scythe is nigh.
US President Barack Obama is set to announce that the ailing automakers have failed to make their case that they have a viable path to future success, and that they are therefore unable to justify billions more in government bailouts – on top of the billions they’ve already received.
Under different circulstances, this might mark the logical termination point for GM and Chrsyler - as well as the end of this blog.
But things are trickier than that in the murky world of bailout politics, circa Recession 2009. So long as GM and Chrysler’s fates continue to hang in the balance, this blog must go on…
The bottom line here is that although, as much of the media is reporting, GM and Chrsyler have both flunked their first big “viability” test, they still have some gas left in the tank as they struggle to reach the next filling station.
Administration officials are now briefing reporters that bankruptcy may be GM and Chrsyler's best chance for survival. They're using the phrase "quick and surgical" bankruptcy to suggest that it wouldn't be a long, dragged-out affair.
A fine balance
The government's also promising to back GM and Chrsyler warranties in the event of bankruptcy.
Obama's treading a very fine line here. He is eager to do all he can to prevent the wholesale collapse of such an iconic American industry, with possibly millions of jobs at stake. Even if the government resurrected GM and Chrysler in some other incarnation, they would never really be the same firms again.
But he’s also up against the finite patience of taxpayers who are understandably asking themselves why Washington insists on throwing good money after bad management.
Hence, Obama’s laying the psychological and logistical groundwork for bankruptcy, even as he hopes against hope that something will give – and the carmakers will prescribe some viability Viagra for themselves in short order.
Radical revamp
The government's giving GM an unspecified sum to stay afloat for 60 days. But it's ruling out any new funding beyond that unless the company comes up with a radical revamp that proves it is serious about getting on the road to a cleaner future of smaller, more fuel-efficient cars.
It will also have to successfully conclude thorny negotiations with union workers over retiree health costs, as well as with its lenders.
GM is set to replace most of its board. (CEO Rick Wagoner is already out the door.) But will even this be enough?
As for Chrysler, it has asked for billions more in aid. But the government is not so sure that Chrysler can survive without an ally on board.
Washington is reportedly ready to consider investing six billion dollars more - provided Chrysler can wrap up a proposed technology-sharing deal with Italian carmaker Fiat.
But Washington seems unconvinced that even the best-case scenarios will suffice to extricate GM and Chrysler from their financial cesspool.
It’s anybody’s guess whether their next stop is the filling station, or the wreckage heap.
Douglas Herbert
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Stay tuned
Comments
GM: Consumer demand more important than Obama demand!
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5. Taxation is also easily adjusted to give the mix of government income and purchase reduction required.
Note that taxation can also be reduced on low-emission cars, making them cheaper than today, in compensation for tax rises on high emission cars - important in "selling the idea" to the people (see below).
6. Car taxation is also easily adaptable to new conditions and new cars on the market.
7. Taxation can be relinquished if and when no longer needed, for example from high emission type cars having carbon capture systems installed either in construction or by retrofit to existing models.
Compare with car efficiency legislation that is lifted when no longer judged to be needed: Manufacturing of the high performance and/or heavy cars affected is hard to start up again.
More: see http://ceolas.net/#cc25x
GM: Cars for consumers, not for Obama!
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Emissions are a problem:
But then there should be specific emission taxation:
1. Consumers don't like taxation, but at least they can still buy the car they want.
2. High emission car purchases can be drastically lowered, as with bans, with a high enough taxation.
3. Governments gain direct income from taxation unlike with bans, income that can be used to further lower car emissions (via for example hydrogen/electric car project subsidies, carbon removal research funding), in turn lowering emissions more than any remaining high emission car use causes them.
4. There is also the simplicity of taxation, compared to working out complicated car phase-outs and replacements.
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GM relaunch: Consumer cars - not Obama cars!
As we know GM was resurrected, having to make fuel efficient cars.
There is nothing wrong with such cars = but there should be no such mandate on them.
There is no oil supply shortage, and if there was, the price rise means increased demand for such cars anyway.
Efficiency regulation seriously and unnecessarily affects what cars can be made to satisfy consumer demand, since for example performance and safety (car weight) are related to efficiency for a given car.
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