Obama ratchets up pressure on GM, Chrysler

Ron Edmonds/AP
President Obama used sharp language in remarks Monday describing the predicament of General Motors and Chrysler and laying the groundwork for possible bankruptcies.

When President Obama issued his stark warning about bankruptcy Monday, he was talking about General Motors and Chrysler – but his message was targeted at a much broader audience.

Italian automaker Fiat had to be listening hard to the president's words. It now has 30 days to
reach a deal to buy Chrysler and get $6 billion in federal loans, the president said. Otherwise, the US company's position is so bad that "in the absence of any other viable partnership, we will not be able to justify investing additional tax dollar to keep Chrysler in business."

Mr. Obama's talk about GM reverberated far beyond its boardroom in Detroit. The message was also aimed at the union and the bondholders, especially the bondholders. If they don't offer more concessions within 60 days, then the automaker could face bankruptcy, the president warned.

"It does put pressure on them, because they have been thinking that when push comes to shove, the government will bail out General Motors," said Mark Roe, a bankruptcy expert at Harvard Law School. Now, "it looks like Obama and the auto task force are laying down a marker."

Channeling anger

The president also had to sound tough for the many Americans – including Monitor readers – angry that US automakers have gotten bailouts after decades of management failures.

Finally, Obama sought to reassure autoworkers.

"When people hear the word 'bankruptcy,' it can be unsettling," he said. "What I am talking about is using our existing legal structure as a tool that, with the backing of the US 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."

Those old debts include healthcare coverage for union retirees as well as the money owed to the holders of GM debt.

A week earlier, investment representatives representing GM bondholders issued their own warning that the existing deal ­ to exchange two-thirds of their GM debt principal for GM stock ­ would not win their approval. The result, they wrote in a letter to Treasury Secretary Timothy Geithner, "would likely be a bankruptcy that would have dire consequences for the company, the tens of thousands of hard-working Americans that GM employs and the economy as a whole."

Warming to bankruptcy?

With his warning Monday, however, the president is aligning his rhetoric more closely to the views of some bankruptcy experts, who have concluded that the private bankruptcy system can work, especially if the federal government is willing to step in with money to fund ongoing operations as GM restructures.

Bankruptcy can actually make certain things easier, such as consolidating its dealerships, Mr. Roe said. "That's a difficult thing to do. Once you terminate a dealer, there's no ongoing relationship." They tend to be angrier than, say, workers who still have a stake in the company.

Now, it's up to the parties to figure out how serious Obama really is. Is his bankruptcy rhetoric a bluff to force the union and bondholders to make concessions? Is it a political expedient to sound tough? Or is it a calculation that, having guaranteed continued service and warranties on new GM and Chrysler vehicles no matter what happens, the White House can tolerate two bankruptcy filings in the auto sector within a period of weeks?

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