Key sentence in the government's GM bankruptcy release ( via Ambinder ) highlighted:
The U.S. Treasury is prepared to provide approximately $30.1 billion of debtor in possession financing to support GM through an expedited chapter 11 proceeding and transition the new GM through its restructuring plan. The U.S. Treasury does not anticipate providing any additional assistance to GM beyond this commitment.
Hmm. If $50 billion ($30B plus an earlier $20B) really is the limit of the taxpayer subsidy, fine. Then GM and the still-privileged UAW will have to make some tough choices down the road--and whatever
happens the bailout could be justified by the backup, background rationale of 'we delayed the end until the economy could handle it.
' But is the Obama Administration really planning to cut off GM's intravenous drip of federal billions,
when the $50 billion doesn't put the company back on its feet? It doesn't look that way, from this quote
in the NYT
That official isn't saying 'We gave them $50 billion. If that's not enough they're on their own. Maybe the UAW will even have to take a wage cut. ' The official is saying "We gave them fifty billion but if that's not enough to let them compete with Honda then 'they will need more money.'" In other words, they're not on their own. Indeed, if they want to maximize their subsidy from Uncle Sam, they'd be well advised to need a few more dozen billions within a year or so. ... You'd think that skeptics in Congress, perhaps noticing the surprisingly anti-bailout polls , could succeed in nailing the administration down to a firmer date for cutting off the federal subsidy (which might actually have the pro-GM effect of forcing the UAW to face reality).** ...
P.S.: Toyota has just unveiled a small, mileage-oriented luxurious Lexus hybrid . It seems to be way more than a padded Prius. Gets 34 mpg. Will sell like hotcakes in West L.A.. Elsewhere, might "benefit from the chaos." ... What are the chances that quality-challenged GM will be able to build something in the same league? I'd say that Elon Musk, for all his problems , has as much of a chance of doing it as GM --and Bill Clinton's good friend Belinda Stronach has a better chance than either of them . ...
P.P.S.: The NYT also says that
On Monday, Mr. Obama is expected to argue that any alternative to his plan would be worse, and that a liquidation of G.M. — the only other real option — would send the unemployment rate soaring over 10 percent and would radiate damage throughout the economy. [E.A.]
The unmentioned middle alternative would have been for Obama to actually have driven a hard bargain and forced a significant-but-tolerable reduction in UAW wages, maybe even enough to give GM a small competitive advantage (heaven forbid). WaPo 's Steven Pearlstein, a bailout popularizer who seems to have good Obama sources, even predicted this outcome , assuring us back in April that "unionized workers will have to accept immediate reductions in base pay." Didn't happen. Instead, the Treasury sent more money. ...
**-- Two Bad Frames: Note that the way this issue is often framed in the press--' Will the government get back its money?' --actually tilts the argument in favor of continued subsidies. After all, if the government just puts in more money, maybe its investment will finally rise in value! Wouldn't want to lose it all after investing so much! If I were advising Congressional skeptics, I'd say 'Forget the getting the $50B back. Maybe it's gone--just like a lot of the TARP bailout money. So what. Forget about the government's "investment." Focus on turning off the spigot .' ... Similarly, as noted , when critics (and the press) frame the issue as "bondholders vs. the UAW' it minimizes the critics' chances of success. The bondholders are doing as well as they could expect to do --and they are, you know, bondholders. It's everyone else (including but not limited to taxpayers) who's paying the price of the unions' extraordinarily favorable bailout deal . ... 11:32 P.M.