Word: chrysler
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...calling GM and Chrysler zombies. Nor am I predicting that the U.S. economy will glide effortlessly through a crisis at the Big Three. But history tells us that no firm is completely indispensable to a national economy, no matter how much of an institution it appears to be. Nor do firms need to be preserved in exactly the form in which we all know them. Any time a giant, money-losing corporation fails, the results are ugly. But the outcome may still look better than a zombie...
President Bush's fiscal lifeline for GM and Chrysler, announced at the White House Friday morning, amounts to a $13.4 billion handoff to the incoming Administration of President-elect Obama. The deal is rife with indistinct targets the automakers must meet to avoid being forced to repay the loan in three months, squishy conditions for union sacrifices and a deadline that can be changed under numerous circumstances. And of course the entire thing can be renegotiated at will by the incoming Administration...
...auto companies then did their part, with Chrysler recently announcing it would shut down operations for a full month, raising the threat of catastrophic liquidation if someone in Washington didn't cough up some money. Bush's hand was forced. In theory, the job of saving the car companies would have gone to the Commerce Department, but its chief, Carlos Gutierrez, doesn't have access to the kind of money Detroit needs, so Bush gave the job to Treasury Secretary Hank Paulson...
...Thursday night, Treasury's interim chief investment officer of the $700 billion bailout fund, Jim Lambright, and his team of crisis managers hunkered down with representatives of GM and Chrysler and worked all night to finalize the details of the deal. The result does its best to impose order on what would otherwise be the disorderly bankruptcies of the two companies, but in many regards it just passes the buck to Obama. To be fair, Treasury had but a week to address an incredibly complex problem and come up with a multibillion-dollar aid package - no small achievement, however lacking...
...plan will move $13.4 billion in funds from the Troubled Asset Relief Program (TARP) to GM and Chrysler, with GM getting $9.4 billion and Chrysler $4 billion. The money will be in the form of three-year loans, but the terms permit the Obama Administration to demand earlier repayment - presumably triggering bankruptcy - if it believes the restructuring goals are not being met. The near-term target is a March 31 deadline for the automakers to show a plan for achieving long-term viability. Based on White House and Treasury descriptions of the plan, this will be less an acid test...