Most papers continue to lead with the troubles facing General Motors and Chrysler. Yesterday, President Obama delivered what the New York Times describes as an "ultimatum" to the troubled automakers warning that they'll be headed for bankruptcy unless they make major changes quickly. GM's shares plunged 25 percent and the Dow Jones industrial average fell 3.3 percent. The Los Angeles Timesand Wall Street Journalpoint out that if the companies have to go into bankruptcy, the Obama administration wants to divide their "good" and "bad" assets. The "good" assets would form a viable new company that could continue to exist or be sold, and the "bad" assets would be purged. While the LAT says that bankruptcy "would be a last resort," the WSJ notes that it looks increasingly likely that GM "will be forced into filing for bankruptcy protection, sometime in mid-to-late May." USA Todaysays the administration's plan is designed to find a balance between "growing public outrage over corporate bailouts and fear that if the auto industry sinks, it will take millions of jobs and the fragile economy down with it." The Washington Postfocuses on fears swirling around corporate America that the administration's plan for the automakers, and particularly the ouster of GM's chief executive, Rick Wagoner, means the government is ready to take similar steps with banks that received taxpayer money.
USAT goes high with Obama's plans for the automakers but leads with word that the EPA will announce plans today to monitor the quality of the air outside 62 schools in 22 states. The paper describes it as the "most sweeping effort to determine whether toxic chemicals permeate the air schoolchildren breathe." The investigation comes as a response to a USAT investigation published late last year that identified schools where the air appeared to be particularly toxic.
There was a big debate in the White House over whether the president should even mention the bankruptcy option in his public remarks since the mere utterance of the word is enough to send investors and consumers into panic mode. In the end, just as the ouster of Wagoner was designed to make it clear that the administration is serious about forcing change on the automakers, the White House decided it needed to bring up the bankruptcy option to motivate bondholders and the United Auto Workers union to make concessions. "They hopefully will see that they have a pretty stark choice in terms of working something out," Sen. Carl Levin of Michigan tells the NYT. "Their option is either to take a haircut or a bath." Yesterday, Fiat's leader said he is eager to reach an agreement with Chrysler.
The WSJ has the most detail on what a bankruptcy reorganization would look like for the automakers. Although the paper cautions that none of it is a "done deal," it does point out that "both the government and the auto makers are planning for such an eventuality." The administration wants the "good" assets of GM, made up of brands such as Chevrolet and Cadillac, to operate as an independent company, while the "good" parts of Chrysler would be sold to Fiat. In order for this plan to work for GM, the UAW would have to agree to a new contract that would include significant reductions in benefits. The "tens of billions of dollars in retiree and health-care obligations" that have hobbled GM would be transferred to an "old GM" that would also include the company's underperforming brands.
Warning of the bankruptcy option is certainly a risky move, particularly for a Democratic president, who risks angering one of his party's most important constituencies. In addition, the administration is vulnerable to criticism that it is being much harder on the automakers than the banks that also received taxpayer money. The WP highlights that the administration demanded Wagoner's resignation, even though the government doesn't own a stake in GM. The White House has so far demanded a change in leadership in American International Group, Freddie Mac, and Fannie Mae, three companies it controls. But it hasn't required similar changes in other banks in which it owns a smaller stake.
In a front-page analysis, the LAT points out that Obama's announcement yesterday "went beyond a desire to be sure tax dollars were not wasted in bailing out struggling companies" and put the administration "in the position of adopting a so-called industrial policy," where the government decides what a company's future should look like. The White House auto task force's report on GM's troubles went as far as to criticize certain models. In a piece inside, the NYT notes that Obama "seemed to be saying, what is good for America will have to be good enough for General Motors." Although the government has taken control of a few companies in the past few months, "directing the fate of a vast manufacturing company, one that still looms over the Midwest, is an entirely different kind of enterprise." The WSJ says that in its plan to remake GM, the White House isn't just interested in preventing job losses, but also "in pushing other policy prescriptions, in particular creating a 'company of the future' with clean and energy-efficient vehicles." Naturally, conservatives were up in arms yesterday, calling Obama's move a dangerous intrusion into the private sector.
While Obama deals with the economic downturn, he can take comfort in the fact that a WP poll shows he still has support among the American people, although it is decreasing. Two-thirds of Americans approve of the job Obama is doing, and around 64 percent say they have confidence in the way Obama is handling the economy, a decrease of eight points since the inauguration. Obama's approval rating among independents has declined six points. In parsing out blame for the current mess, most Americans prefer to focus on corporations, and to a lesser extent consumers and the Bush administration, rather than Obama. But only 52 percent of Americans support the way Obama has handled the federal budget deficit. The Post poll found that there is a "bigger partisan divide" over the economy "than the one that occurred 16 years ago after Bill Clinton took office."
That partisan divide has become obvious in Washington, and one of the biggest instigators is a senator who only two months ago seemed poised to enter Obama's Cabinet. "This is not a time when we should stand in our ideological corners and shout at each other," Sen. Judd Gregg said when he accepted the nomination to be commerce secretary. The Post points out that now Gregg has turned into the top critic of Obama's budget, saying that it could lead to "bankruptcy for the United States." He also said that a Democratic proposal to use reconciliation, a budget procedure that would allow a measure to pass without significant Republican support, to pass health care reform was akin to an "act of violence against the system here in the Senate." (Slate's John Dickerson writes that the administration has now "all but given up even the pretense of bipartisanship" and cites Gregg as the "best measure of how far we've not traveled" in creating a postpartisan Washington.)
The WP and NYT front news that militants stormed a police academy near Lahore, Pakistan, that led to a daylong battle and left at least 11 people dead and more than 100 wounded. The Punjab province, where the attack took place, is the country's most populous and had been relatively peaceful, but yesterday's attack came around a month after militants in Lahore opened fire on a Sri Lankan cricket team, killing seven people. The attack yesterday was impressive in its intensity and coordination. It was yet another wake-up call that Pakistan's problems aren't confined to the lawless tribal regions and now threaten the entire country.
In the NYT's op-ed page, William Holstein writes that Obama's "stunning decision" to force Wagoner to resign "was based on the wrong set of premises and raises the prospect that the administration will intervene too deeply in the automaker." Wagoner has been instrumental to GM's restructuring, and his deep knowledge of the company, and the industry as a whole, "could simply be lost" while his successor might not be ready to take over. It may have been a smart political move to get rid of Wagoner, but before Obama continues down this path, he needs to recognize the changes GM has made "and strike the right balance in respecting the role of the private sector." Unlike the failed Wall Street banks, GM "consists of real factories where real people make real things," writes Holstein. "As it looks to micromanage an entire industry, let's hope the administration doesn't lose sight of the human side of things."