Barack Obama was halfway through his 18-minute address on the future of GM and Chrysler before he spoke the word everyone was waiting for: “Now, while Chrysler and GM are very different companies with very different paths forward, both need a fresh start to implement the restructuring plan they developed. That may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger.”
So GM has 60 days to sing for its supper if it wants to claim a few billion additional dollars in federal aid, and Chrysler’s leash is even shorter: 30 days to consummate a shotgun wedding with Fiat, the only suitor in sight. By way of consolation, there is only Obama’s pledge that if you buy a Malibu or a Sebring and your seat heater breaks under warranty, the president will fix it.
The surest sign of the auto industry’s decline is that its leaders were politically unable to leverage a deal that better suited their self-interest. Gone are the days when presidential cabinets were larded with auto executives like Charles Wilson and Robert McNamara; Larry Summers and Tim Geithner are from Wall Street, not Detroit, and no one could accuse them of failing to look out for their own.
Don’t get me wrong; reorganization bankruptcy indeed sounds like the best course for the car companies. The president made a nicely concise case for it: “I want everybody to be clear about this,” Obama said. “I know that when people hear the word ‘bankruptcy,’ it can be unsettling. So let me explain exactly what I mean.
“What I’m talking about is using our existing legal structure as a tool that, with the backing of the U.S. government, can make it easier for General Motors and Chrysler to quickly clear away old debts that are weighing them down so that they can get back on their feet and onto a path to success, a tool that we can use even as workers stay on the job building cars that are being sold.”
This makes sense. Substitute “Citigroup and AIG” for “General Motors and Chrysler” and it makes even more sense. What the president has prescribed for the symbolic pillars of the old, manufacturing-driven U.S. order is precisely what economists from Nouriel Roubini and Paul Krugman to Joseph Stiglitz and V.V. Chari have called for in the financial realm under the headings of nationalization or bankruptcy reorganization. Take the pain now; toss out the discredited management regime; get the bad debt off the books; and get on with the future.
I’m sure there are those eternal optimists who would like to believe that pushing the automakers into Chapter 11 is a precursor to the more delicate problem of doing the same with financial companies. Didn’t Geithner propose just last week to give the feds authority to take over non-bank financial institutions? The trouble with this outlook–wish, really–is that this administration has already spent too much money and too much political capital denying the reality of the situation to change course now. If and when they are finally forced to go there, it will be a matter of last resort and likely far too late.