Oh, so there was even more to the GM Wagoner resignation than met the eye.
So how come no bank turnaround plans? Oh, if they were no good, the government might have to get tough with them. Can’t have that, now can we?
From CNBC (hat tip reader Dwight):
The announcement by the White House autos panel headed by former investment banker Steve Rattner marked a stunning reversal for management at both automakers and for GM investors and creditors who had bet on a softer line.
“We have unfortunately concluded that neither plan submitted by either company represents viability and therefore does not warrant the substantial additional investments that they requested,” said a senior administration official, who asked not to be named…..
he White House says neither GM nor Chrysler submitted acceptable plans to receive more bailout money, setting the stage for a crisis in Detroit and putting in motion what could be the final two months of two American auto giants.
President Barack Obama and his top advisers have determined that neither company is viable and that taxpayers will not spend untold billions more to keep the pair of automakers open forever.
In a last-ditch effort, the administration gave each company a brief deadline to try one last time to convince Washington it is worth saving, said senior administration officials who spoke on the condition of anonymity to more bluntly discuss the decision.
Obama was set to make the announcement at 11 a.m. ET Monday in the White House’s foyer.
General Motors Corp. and Chrysler LLC must overhaul their recovery plans with deeper concessions to justify further taxpayer aid, and bankruptcy may ultimately be their best chance, an Obama administration official said….
Detroit-based GM sought as much as $16.6 billion in additional aid after receiving $13.4 billion since December. Chrysler sought $5 billion after receiving $4 billion. Both had to show progress by the end of this month in matters such as GM’s need to reduce unsecured debt by two-thirds.
Neither company completed the tasks, the administration official said. The aid plans submitted to the government Feb. 17 don’t warrant additional assistance, the administration concluded. GM’s plan to cut unsecured debt by two-thirds wasn’t sufficient, and Chrysler’s debt was far beyond what the company could sustain, the official said.
GM’s plan wouldn’t lead to success even in an improved economy, the administration found. The new strategy sought by the administration would focus on sustainable profit and significant changes in brands, workforce, nameplates and the retail network.
It would be better if we were wrong, but we are of the school that putting the big automakers into bankruptcy, despite its attractions (being able to restructure debt and dealer networks; the UAW contracts are far less significant economically than the media makes them out to be) misses out on one crucial element: you don’t have a business if you don’t have customers. And a GM bankruptcy would be a protracted affair. Even if consumers believe the company will make it, what about their local dealer? If they worry they might have to schlepp to get their car serviced, is it worth it?
In typical backwards American deal and contract focused thinking, the officialdom has not spent enough time assessing the single most important issue: how would customers react? If GM and Chrysler were to lose as many as 20% of sales they’d otherwise get as a result of a bankruptcy filing, that it is a very big change in outcomes. And the drop could be considerably higher than that.
I worry that this punitive move will wind up being Lehman redux. Recall that bailout disgust was running high post Bear and Fannie and Freddie, and Someone Had to Suffer to show the Administration was made of real men. Now since no one even dares bitch slap a bank (the bonus stuff is mere Punch and Judy), all the hostility is channeled at Big Auto. And the danger is going into overkill literally, not just figuratively, to make up for being too easy on the financiers.
And if GM or Chrysler were to be liquidated, the knock-on effects would be grim. They are important to quite a few parts suppliers. If those suppliers fail, it threatens the viability of the foreign transplants.
The markets appear to share these reservations. The Nikkei had been down, but has fallen further, S&P futures declined from 10 points down to 13 points down, and Treasuries have strengthened from their earlier in the evening levels.