TRAVERSE CITY, MICHIGAN – General Motors, Chrysler and the auto industry — not the banking industry — continue to be the whipping boys for members of the far right who paint the Obama administration not as post-supply side Keynesians, but as unmitigated socialists. Ron Bloom, the new chairman of the Treasury department’s Automotive Task Force, tried to address that at the Center for Automotive Research’s annual conference here Wednesday.Granted, he was preaching to the choir. This crowd consisted not of socialist refugees from the old Trabant factory in East Germany, but of North American supplier executives who make up the majority of the CAR Conference’s audience. I’d venture to bet that a majority identify themselves as Republicans.Bloom addressed criticism that GM, Chrysler and the task force subverted longstanding U.S. Chapter 11 rules in giving secured creditors low priority in each filing.”Those who write of the bankruptcy rule being turned on its head haven’t read the two judges’ opinions,” he said. There’s enough case study to show “enough exception that the rule was swallowed long ago.”The quick, 43-day Chrysler bankruptcy and 39-day GM bankruptcy were designed to best maximize each “estate,” and quickly get them back in the business of selling cars and trucks, Bloom said. And any money provided to such creditors is entirely at the discretion of the debtor-in-possession creditor — in this case, the U.S. Government.So why not let GM and Chrysler file Chapter 11s privately? Bloom agrees with GM CEO Fritz Henderson’s argument that in the current financial climate, no other debtor-in-possession creditor large enough to take over the automakers was available. Paying off secured creditors would have been costly, making it impossible for the two automakers to issue stock and repay the Treasury. Bloom says he won’t second-guess Henderson’s assertion that GM can start an initial public offering as early as 2010, and start paying the Treasury about $50 billion back. Bloom believes it possible, but the size of the IPO will depend on GM’s and the market’s condition. Chrysler will need more time. He said repeatedly that the Obama administration does not want to run the auto industry, that neither he nor Barack Obama believes they can run the auto industry better than industry executives. And yet, giving the federal government a stake in each automaker is a better way to shepherd our investment. “GM needed capital. Providing capital as debt would have compounded the situation.”Of course, this is automaker country, and it would be hard to find anyone here who didn’t find Bloom’s reassurances, well, reassuring. Without government intervention, GM and Chrysler would have liquidated, bringing much of the supplier base and probably the Ford Motor Company with them. Unemployment already is 15.4 percent in Michigan, 4.9 points higher than the national level.GM and Chrysler won’t be told what kinds of cars and trucks to build, beyond what the Environmental Protection Agency and the National Highway Traffic Safety Administration already mandate for each and every vehicle sold in the United States, Bloom said. Another speaker here, Rod Lache, managing director of Deutsche Bank Securities, said of Bloom’s “government intervention” in the auto industry, “Wall Street is not as concerned about this as you may believe.”Chapter 7 liquidation for GM and Chrysler would have collapsed Ford, Honda, Toyota, Nissan — most every automaker doing business in the U.S., Lache said.”We think that GM may be profitable by 2011. Ford looks like it may do it even later this year.” And yet, even with Wall Street’s support, a small, but vocal contingent in the U.S. see any government intervention as detrimental to the very core being of capitalism. Detrimental to unbridled capitalism, perhaps. The ravages of unbridled capitalism is, after all, what exacerbated GM’s and Chrysler’s problems in the first place.Nevertheless, with most of this crowd reassured by these Keynesian efforts to rebuild the auto industry, and with it a manufacturing-based economy, on Tuesday, so-called tea-baggers loudly protested a congressman’s press conference on extending the Cash for Clunkers bill at a St. Louis dealership. Why? Because it gave government-funded rebates to get consumers back into car dealerships? Because the $1-billion Cash for Clunkers program was more successful at stimulating the economy than George W. Bush’s $600-per-taxpayer rebate last year?Why do the tea-baggers hate the auto industry so much?
Source : blogs.motortrend.com/6565968/government/auto-task-force-we-wont-tell-gm-chrysler-what-to-build/index.html
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