The Administration Give GM (GM) And Chrysler Another Chance

The Administration is losing it grip on the process of restructuring the auto industry. It has let another deadline pass and will supply more  money to Chrysler and GM (GM) as they allegedly finalized the programs to remain viable. The government had indicated that it will let the two car companies move into bankruptcy, but the threat is losing some of its power.

As each day goes by without Chapter 11 filings, the UAW and creditors become more confident that time in on their sides and that a waiting game will bring them the best results.

According to Reuters, “The Obama administration will make about $500 million available to Chrysler LLC through the end of this month as it seeks to reach an alliance with Fiat, and up to $5 billion through May to help General Motors Corp restructure outside of bankruptcy.”

What is hard to understand is why the government keeps moving the goal posts. The likely answer is that legal experts are advising that Chapter 11 could take months as creditors, the unions, and suppliers each make their cases to a judge. The process might go on long enough that the government would have to keep GM and Chrysler on life support, spending billions of dollars. Since the Administration will have to invest the money anyway to save as many jobs as possible and keep car company assets from falling into foreign hands, it might as well play along and see whether the sum of the concessions from labor and bond holders increase.

The longer into the night the card game goes, the more emboldened the UAW and creditors will become. The Treasury is not making good on its threats, and that is a sign of weakness, weakness that can only draw the process out.

Douglas A. McIntyre