As the Democratic Congress and the White House wressle with a bail-out of the domestic auto industry, the outline of a sensible and practisable solution are starting to become visible — at least to this observer. I think that the Internet is having a profound impact on the debate, because information and viewpoints are now available openly and almost instanteously whereas in the past involvement was limited to a small group people with personal access/contacts.
I, for one, have witnessed my understanding of what it will take to solve the crisis involve rapidly over the past 48 hours after posting an article on the subject on GroundReport on Saturday morning. This is from someone who managed the General Motors Board cycle for 3 years in the 1980’s, so I had a headstart. I realized that I had overlooked important two issues in that article, "GM Bail-Out – Spread the Pain", i.e., the Debtor-In-Possession and Product Warranty.
Now I think that Congress should put GM, Ford and Chrysler into BANKRUPTCY as a way to really get all the parties to the table. The comments of management, the UAW, dealer associations and local governments have convinced me that BANKRUPTCY is the only way to change the old way of doing business and rip up the contracts that are holding the industry back from a real re-structuring that would allow them to re-emerge as viable entities. All of the stakeholders are trying to get a hand-out without making any of the real concessions that are needed to fixed the companies on a long-term basis.
So the Federal Government’s role in the bail-out should be to provide:
- Debtor-in-Possession financing that the companies cannot raise in the private markets to ensure that they enter the Chapter 11 restructuring process, not the Chapter 7 liqudiation process. It is unlikely that the private sector will provide sufficient DIP financing given current market conditions. DIP financing is ranked senior to all other obligations in a bankruptcy so taxpayers will get their money back before it goes to management and salaried employees for excessive retirement benefits/ health insurance, UAW ‘do nothing’ job banks and gold-plated retiree health care, dealer lawsuits under state franchisee laws, and local government property tax recoveries. To get all of the sins of past corrected, only a BANKRUPTCY judge has the legal power to re-negotiate each and every current contractual agreement.
- The Federal Government would guarantee existing and future Product Warranties during the BANKRUPTCY process. This would give the American public the confidence to buy American cars and trucks knowing that the Government would honor their warranties.
I still think it is in the national interest for the Federal Government to bail-out the domestic automotive industry — if only to preserve America’s ability to manfacture vehicles in war time — but that the mechanism for rescuing the industry is a pre-packaged bankruptcy with the Government providing the DIP financing and guaranteeing exsiting and future product warranties.
This is an approach that the Democrats and Republicans in the Congress and the White House should be able to accept by the end of this week. They will have fixed the problem while leaving the really hard job taking away entitlements from the stakeholders to a cold-hearted bankruptcy judge.
This approach would let the taxpayers find out if the car companies and their stakeholders really need Government help or are just posturing to avoid making concessions and maintain the status quo.