Having just watched Barack Obama’s televised remarks about GM and Chrysler, the most striking thing was that, after a gentle start praising the historic strengths of the industry and its place at the heart of the US economy, he got remarkably tough.
First, the president said openly that they might have to go into Chapter 11 bankruptcy to meet a 60-day deadline for restructuring, in the case of GM, and 30-day deadline, in the case of Chrysler:
“Both need a fresh start to implement the restructuring plans they develop. That may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger. Now, I know that when people even hear the word “bankruptcy” it can be a bit unsettling, so let me explain what I mean. 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 they can get back on their feet and onto a path to success; a tool that we can use, even as workers are staying on the job building cars that are being sold.”
Well, Amen to that. One of the most frustrating things about the auto companies’ statements in the past few weeks has been their insistence on equating Chapter 11 bankruptcy and restructuring with liquidation. The administration has correctly seen through this ruse.
Second, however, Mr Obama insisted that the US government would let Chrysler actually go bust – not just to enter Chapter 11 – if it does not reach a partnership deal with Fiat or another company.
“If they are able to come to a sound agreement that protects American taxpayers, we will consider lending up to $6bn to help their plan succeed. But if they and their stakeholders are unable to reach such an agreement, and in the absence of any other viable partnership, we will not be able to justify investing additional tax dollar to keep Chrysler in business.”
I am not entirely sure that I believe this – that the US government would stand by and let Chrysler go down – but Mr Obama has put it clearly on record so it would be hard to back out. It will certainly have the effect of making the 30-day deadline to get a Chrysler-Fiat deal done bite.
