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GM will be forced into bankruptcy. An additional $15 billion in aid from Congress could mean it happens at the end of March rather than in the next few weeks, but even with a government bailout, the auto giant’s bankruptcy is a question of when, not if.
Testimony in Washington last week, in front of both Senate and House committees, confirmed that, barring government aid, GM’s cash position will force a bankruptcy filing this month, either because of lack of liquidity or a breach of debt covenants.
A glaring lack of understanding among lawmakers, much less consensus, sealed GM’s fate.
On Thursday, the CEOs of the Big Three testified in front of the Senate Banking, Housing, and Urban Affairs Committee, chaired by Chris Dodd (D-CT). A reasonable line of questioning would have been to begin with the fact that only GM’s situation was critical, determine how GM could achieve solvency on a long-term basis, and decide if the taxpayers should underwrite the expenses necessary to bring about that goal.
What actually transpired in the Thursday session, and during the Friday session in front of Barney Frank’s (D-MA) House Financial Services Committee, was a far cry from anything that rational.
On Thursday, for example, Chairman Dodd became inexplicably fixated on issues such as why the automakers were taking inordinately long to send rebate checks to auto dealers in his home state of Connecticut and why the Big Three were not more focused on the market for minibuses, given the need mass transit. There was an extensive discussion, led by Senator Schumer (D-NY), over whether a committee or an individual trustee should manage oversight of a workout period. And we saw a renewed discussion of how the CEOs had traveled to Washington, whether they carpooled, and what their plans were for returning home.
Friday’s session focused even less on key issues. Representative Al Green (D-TX) offered a sermon on why the auto industry was vital to our national interests. There was continued discussion of the plight of auto dealers — a highly troublesome issue that deserves attention, yes, but absent was any discussion on the economics of GM’s business model. To instead focus on peripheral issues like the solvency of auto dealers is a classic case of treating the symptoms rather than the disease.
Only senator Bob Corker (R-TN) seemed to have done the necessary research to grasp the central issues and ask the right questions. On Wednesday, Ron Gettelfinger, President of the UAW, announced that the union would make two concessions — postponing GM’s required contributions to the workers’ health care plan (VEBA) and eliminating the highly contentious Jobs Bank program. While most committee members offered nothing but compliments to the UAW for these concessions, Corker took a different view, saying the following:
“The problem is you [Mr. Wagoner] have this built-in problem that’s not going to be solved unless it’s forced to be solved. And there’s no way that Mr. Gettelfinger – there’s no way he’s going to sit down and do the things that he has to do to make you competitive, unless he knows the end game is bankruptcy. He’s not going to do it. It’s not possible… He can’t make it happen with his membership without that happening.”
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