Tuesday, March 31, 2009

Maybe it's time to talk about the "B" word

Like DJ, I'm feeling a combination of anger and fear about our auto industry's future, but I also feel a sense of resignation. How much longer can we continue this way? We're dying slowly, one excruciating job loss at a time, and it's like torture. I'm beginning to think maybe it's time to call in the triage team, or in this case the restructuring team.

Michigan native Jonathan Cohn expands on the "surgical bankruptcy" Obama mentioned this morning. He believes the administration is serious about that possibility, and he also notes that people involved in the debate see Section 363 of the bankruptcy code as a way for the company to continue operating without the burden of their huge debts. ((Fritz Henderson was quoted yesterday as saying a "strategic" bankruptcy supported with government money would be less risky than traditional Chapter 11 protection too.) Cohn provided a link to Harvard Law Professor Mark Roe that basically explains it like this...
GM files for chapter 11. The company puts together the automotive operations, and leaves behind the legacy obligations to retired workers and the bond obligations. It takes the auto operations and sells them intact. Section 363 of the Bankruptcy Code provides for these kinds of sales. This would leave behind restructuring the bond debt and the legacy claims. Whatever GM gets from the automotive sale will go to pay off the bonds and pay off the legacy claims. That part is in some ways straightforward. If it can be completed, consumers would be looking at a viable GM that has exited bankruptcy. Then the claims–the legacy claims and the like–will be resolved.
Is Section 363 what Obama has in mind? It does have some benefits. GM would continue operating without the burden of their legacy debts, or what we call pensions and lifetime health care benefits. That would help free up cash and strengthen the company, which could end up protecting jobs that would be lost if they were allowed to completely fail. But what about the thousands of retired employees? Does that mean the PBGC would assume GM's pensions and people would lose their health care? Maybe someone familiar with bankruptcy laws could fill us in and help alleviate our fears.

As dark as it seems right now, there is reason to be hopeful about Obama's plans if history is any guide. According to an article in Washington Monthly, "any honest reading of history suggests that the federal government has quite an impressive record of rescuing institutions considered too big to fail." From banks to Lockheed, Chrysler, airlines and Penn Central Railway [Nixon came to the conclusion help was necessary - it's known as Conrail today], government help turned out better than anyone hoped and the companies returned to profitability. Those successes also left a good checklist for the Obama administration to follow:
...leave your ideology at the door, pay more attention to the engineers and managers on the ground than to the financiers in the corner offices, and remember that social returns, not profits, are the ultimate measure of success.
Our future is still uncertain, but I'm confident that if Bush and the Republicans were still in control, we'd be writing an obituary for GM and Chrysler today. I trust President Obama to remember those social returns and do his best to turn things around for us. I just hope he can fight off the Republicans and Wall Street types who'd prefer to just pull the plug and let us die.

And remember, Obama didn't say he's letting us die. He said he'd fight for us and that he's sending us help, which is like sending us to rehab. That's where patients go to have their quality of life restored. It's where they go to become whole again. We need that. We need to be whole again.


K. said...

I can't begin to imagine what it must be like having a way of life fall apart around you. Surely we won't cast the retirees loose -- there must be a safety net there.

My worry is less about the government response and more about leaving GM in the hands of its current management structure. The company has been horribly managed, and I don't trust it to work its way to prosperity even with the head start of a surgical bankruptcy. From what I read, GM's board is a disaster -- any government bail-out must be accompanied by a major board shakeup.

Kathy said...

K, it's very hard to live through this. I'm personally affected by the uncertainty because my husband works for one of the Big-2, but there are few people in Michigan who don't have family or friends connected to the industry. Our entire quality of life as a state has been affected.

abi said...

Kathy, that Obama forced Wagoner out is an encouraging sign that he's willing to do whatever it takes to save the auto industry - or at least GM.

Sometimes it takes a crisis like this for American ingenuity to kick in. And I think it will. Detroit knows it can no longer make 20th-century cars and survive. I think we're going to see some impressive innovation come out of Detroit. But like K said, I think Obama has to kick some more ass before that happens.

Kathy said...

Abi, I saw it as an encouraging sign too, and as much as the thought of bankruptcy scares me, I think Obama will do whatever he can to alleviate the pain of those directly affected. We won't be another Katrina, I hope.