AFSCME 3357-HOF'S BLOG

Bailing Out is Hard to Do





It should have been a simple thing for the Detroit 3 to walk into the halls of Congress this week, do a dog and pony show, and walk out with $25 billion. After all, going into this week, the Republican leadership had a $25 billion plan, and the Democratic leadership had a $25 billion plan. The big difference was where the money was to come from, and they can compromise on that, right? Not so fast.

The Democrat plan called for the $25 billion to come from the $700 billion TARP money. The Republican plan called for the $25 billion to come from the $25 billion already allocated for energy efficiency updates. Significant difference yes, but plenty of room for a deal. After all, Secretary Paulson already said he was going to leave half of the $700 billion for the incoming administration to decide what to do with. Why not let them use a little bit now? To look at it from the other side, the Detroit 3 can't use the $25 billion for developing energy efficient vehicles if they can't keep the lights on long enough to rehire the engineers that they've already laid off. Moreover, when President Obama comes in, he's going to (hopefully) lay out a comprehensive energy plan anyway that's going to require hundreds of billions of bucks. What's $25 billion more or less among friends? Split the baby, take half from each pot, and walk away happy, right? Nope.

Then there was the dog and pony show. The Three Amigo CEOS, Nardelli, Wagoner and Mulally came to testify. What do you call this act? We call them THE ARISTOCRATS!. The Teenage Mutant Ninja Turtles could have done a better job making the case for an auto bailout. It didn't help that they all flew in corporate jets to get to the hearing. First of all, Bob Nardelli didn't even belong there. Chrysler is owned by Cerberus, Cerberus allegedly has tens of billions of dollars sitting around that it could invest in Chrysler, if it made sense. They haven't even opened the books to show the company's true financial position. Secondly, Alan Mulally basically said Ford doesn't need the money right now, which is not exactly the truth because they just sold most of their crown jewel, Mazda, for the equivalent of half a month's negative cash flow. If you really want to kill a deal, bring out the big geeky kid, Rick Wagoner. It was like a frat boy who goes on a bender the night before a big test, writes the answers on his hand before the test, and gives the wrong answer for each question. He wouldn't say how much money GM really needs. He wouldn't say that he would work for a dollar like Lee Iaccoca -- or better yet, resign for the good of the company. He wouldn't convey the image that GM has the foggiest idea how to straighten its course without bankruptcy. He is sure, however that bankruptcy is the wrong answer. The bottom line is that after the hearing fiasco, there had to be a number of congress members from each party who were convinced that giving these folks federal money would be about the same thing as throwing it away.

While the most recent news stories suggest the bailout deal is dead, I'm not so sure. I think they probably will pass some kind of loan program. The problem is, that program will have some kind of prerequisite that to get the money, you will have to show that you have a plan for actually paying that money back. GM and Chrysler (at least) don't have a plan. So, the end result will be that the resulting loans will be as illusory as the HopeNow loans for homeowners.

Photo credit: Associated Press via Detroit News