Obama To Offer Big 3 Rapid Bankruptcy Deal?
By Justin Gardner | Related entries in Barack, Business, Cars, Economy
That’s the word today, and if we could actually do a Chapter 11 that wouldn’t halt production and cause a domino effect down the line, well, this could be an option that I might be able to get on board with.
First, the deal…
In a prepackaged bankruptcy, an automaker would go into court with financing in hand after reaching agreement with lenders, workers and suppliers on what each would give up and on the business plan to be followed. The process might take six to 12 months, compared with two to five years if the automakers followed an ordinary Chapter 11 proceeding and worked out agreements under a judge’s supervision, Bane said.
A representative of Obama’s team has already contacted at least one bankruptcy-law firm to say that Daniel Tarullo, a professor at Georgetown University’s law school who heads Obama’s economic policy working group, would call to discuss the workings of a so-called prepack, according to this person.U.S. lawmakers yesterday delayed until December a vote on whether to give General Motors Corp., Ford Motor Co. and Chrysler LLC a $25 billion bailout. GM today said it would idle production at four plants an extra week and return some corporate jets to conserve cash. Automakers could use a judge-supervised bankruptcy to reduce debt and reject expensive contracts.
“It creates the environment to deal with GM’s problems but limits government financial commitment,” said bankruptcy lawyer Mark Bane of Ropes & Gray in New York.
Bankruptcy is just one option being examined. Obama told CBS News’s “60 Minutes” on Nov. 16 that government aid to automakers might come in the form of a “bridge loan,” advanced if the industry could draw up plan to make itself “sustainable.” The president-elect earlier urged Congress to approve as much as $50 billion to save automakers, using the model of Chrysler’s bailout in 1979.
Tarullo referred questions on a prepack to the transition team press office. Team spokeswoman Stephanie Cutter said, “We have not put out anything specific for the auto industry except that something needs to be done immediately.”
So what does this tell us about Obama?
First, he’s positioning himself as the anti-Bush right away. He has a preference, but if that’s not politically feasible, he’s not going to be stubborn.
Second, this is a signal that bi-partisanship won’t be lip service. True, we’ll have to see where this goes, but an encouraging sign nonetheless. And in times like this, there’s little room for ideological demagoguery.
Third, he could be willing to go against labor interests who may not budge on their contracts/pensions if the auto companies got a bridge loan. Chapter 11 would force the unions to make concessions or risk looking like they’re the ones who scuttled the deal.
More as it develops…
This entry was posted on Friday, November 21st, 2008 and is filed under Barack, Business, Cars, Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
November 21st, 2008 at 2:18 pm
I think this is a great idea by Obama. The Big 3 need re-structuring in bankruptcy. Check out this article on pro v. con of bailing out the auto industry, the against written by Mitt Romney: http://www.itaffectsus.com/?p=88
November 21st, 2008 at 5:21 pm
The gas prices this past year have seriously damaged our economy and society. We must get on with becoming energy independent.We can’t take another year like this past. Jeff Wilson has a wonderful new book out about the energy crisis and what it would take for America to become energy independent. It covers every aspect of oil, what it’s uses are besides gasoline, our reserves, our depletion of it. Every type of alternative energy is covered and it’s potential to replace oil. He even has proposed legislative agenda’s that would be necessary to implement these changes along with time frames. This book is profoundly informative and our country needs to become more informed and move forward with becoming energy independent. It is called The Manhattan Project of 2009 Energy Independence NOW.
November 21st, 2008 at 6:28 pm
I was thinking of something similar earlier today. What they need is not a bailout, but a government assisted restructuring so that people would still buy their cars knowing that bankruptcy wouldn’t leave them in the lurch.
They still need to do something about the top people, though. Jay Leno suggested that if they’re going to be government employees, they need to be on a government pay scale. He was joking, but it’s true. Cut those assholes down to $400K a year, max.
November 22nd, 2008 at 12:20 am
Heh. You are cracking me up Justin. What happened to all that Auto Bailout Math that was supposed to change minds about Chapter 11 restructuring for the big 3?
Oh wait. I forgot. There is a difference between now and yesterday. Obama is now sending up trial balloons that he might support that route. Whatever. In any case – we are in violent agreement right now. A prepackaged Chapter 11 filing is exactly the right way to go, and I really hope this bloomberg story is correct. And no worries – I understand – your support for this path is completely provisional on whether or not Obama supports it. If he doesn’t – we can go back to your new math again.
November 24th, 2008 at 8:22 am
Nissan is flooding the market with electric cars in three years, Toyota and Honda following suit. Unless our auto makers follow suit, Bye Bye big three. Too bad you effed over so many workers with your greed. Oh, the executives will be fine, they’re all rich!
December 12th, 2008 at 9:56 pm
Baillout / Bankrupcy How about Chrysler? Are they going to get away with this? They have been selling Some of their cars with a defective Engine for 10 years and they have been aware of it for a number of years. The 2.7 Liter Engine is poorly designed and has many Issues Sludge and cooling and of dieing an early death. Not being aware of the 2.7 Liter engine Defects my wife Bought an 2001 Dodge Intrepid with a 2.7 Liter Engine Used from a GM Dealer. Upon trying with no Sucess to Obtain a Service history of the car and having the car serviced Regulary at a Dodge Dealer she has had a number of problems with the engine. First the Cooling connection on top of engine had to be replaced Aprox $200 repair.Two Now another Coolent Leak which could be of 2 causes, bad theromastat housing gasket $ 200 or bad waterpump $1,000 both items are almost imposibal to get to to repair and now a possibality of a future engine Seizing up due to the poor design with repair cost of $ 7,000 when it fails. When she bought it har 60,000 miles on it and now about 90,000 miles on it. They blame this on poor maintance from most engine failures? Many people are and have these problems but Chrysler continue to for the most part Ignore the Owners. There is a class action Lawsuit on this but a lot of eldery owners can’t afford these repairs nor can they afford a new car at the current prices and soon may be out of any car or transportation. I belive Chrysler should fess up and do something about these Defective engines if they want to get any baillout money. Other manufactors who have had similar problems have done so and have taken responcibility to repair or replace their engine problems. Chrysler want the money now. Must their customers with Defective engines wait foever for the Lawsuit to be settled? After all if your Crysler Car with its defective engine has Been sent to the Junkyard and crushed how can a past owner recover any of their hardearned money? This problem has been going on for at least 10 Model Years and they are still selling cars with the 2.7 Liter Engine. Someone needs to do something about this.
In fact now Chrysler is offering a Lifetime Engine / Transmission Warranty on these Engines which shows they are aware of the problems.
Mabey The New President Elect before he takes office and Congress And Bush needs to be aware of this and hold Chrysler to account for this in order to get any Baillout Money. They might sell more cars if they would take better care of their customers.