March 31 (Bloomberg) — President Barack Obama has determined that a prepackaged bankruptcy is the best way for General Motors Corp. to restructure and become a competitive automaker, people familiar with the matter said.
The headline above was enough to make a “sick of the bailouts” capitalist rejoice. Was the discipline of the free market system finally being allowed to work? Sure sounded good until the GM bankruptcy option was shortly thereafter revised from “best option” to “likely”.
April 1 (Bloomberg) — President Barack Obama believes a quick, negotiated bankruptcy is the most likely way for General Motors Corp. to restructure and become a competitive automaker, people familiar with the matter said.
The president gave GM 60 days to come up with deeper cost and debt reductions than the biggest U.S. automaker proposed in its plan submitted last month.
“The president’s position has not changed,” a White House official said. “He remains committed to a significant restructuring without a bankruptcy if at all possible.”
It’s hard to believe that all three of the above contradictory statements were all in the same article. Obama wants a quick bankruptcy but gives GM 60 more days to reinvent itself while a White House official stoutly maintains that Obama does not want a GM bankruptcy.
This could all be very confusing until you realize that Obama’s “bankruptcy plan” for GM is merely a socialist hat trick motivated by polls that show over 60% of the public is opposed to bailing out the auto industry. Politically, Obama is saying the right words but in the end there will be no bankruptcy for GM. Instead, we will have a bailout disguised as a restructuring.
Barney Frank, chairman of the House Financial Services Committee, in an interview with BusinessWeek late last year, was at least honest enough to tell us what the government’s real position on GM is when he said “Well, in the first place, it’s hardly the American way to just let people go bankrupt”. Barney Frank was attempting to define capitalism as socialism, but that’s another story.
Likely GM Outcome
Once the confusing clouds of doublespeak dissipate, here’s the most likely ending to the GM disaster.
-GM will come up with a magical plan within 60 days showing deep cost reduction, debt restructuring and a return to profitability within 2 years. The government will decide that bankruptcy is not necessary after all.
-GM bondholders will be beaten into submission by the Government and given two options – accept pennies on the dollar for all debt or receive an equity position of dubious value in exchange for debt forgiveness.
-The unions will do their part with token concessions and happily avoid any bankruptcy ordered pay or benefit reductions. Those GM employees given early retirement or let go were offered billions in severance and benefits; don’t expect those still employed to accept major wage or benefit reductions.
-The United Auto Workers declare their support for the government blessed “restructuring”.
-GM receives major back door government funding disguised as subsidies or tax breaks for various actions deemed desirable by the government. How about a government subsidy to GM for every “green automobile” that they produce?
-The American public is duped into believing that the GM problem is solved without a bailout until GM needs a bailout again.
-GM continues to suffer from its high cost structure and struggles to compete globally.
Does GM ultimately survive and become a financially profitable enterprise at some point? Who knows – the more important question is can the American taxpayer survive?