President Barack Obama has become a de facto bankruptcy judge — one of many important consequences of the White House’s actions in recent days regarding the auto industry.
The administration’s increased role in General Motors and Chrysler — analyzing and directing the restructuring, providing additional loans under the Troubled Assets Relief Program, and creating new subsidies — represents an important shift in the government’s relationship with businesses it is bailing out.
“Basically, what is happening here is a bankruptcy process,” said Dan Ikenson at the libertarian Cato Institute.
Ikenson speculates that labor union resistance has driven the White House to keep GM and Chrysler out of traditional bankruptcy. “The [United Autoworkers Union] has been really averse to seeing that process happen,” Ikenson told The Examiner, because bankruptcy could “abrogate the contracts entirely … in a way that the unions feel would penalize their workers.”
With the White House rather than bankruptcy court in charge, Ikenson said, “They’re going to make the bondholders and management make all of the necessary concessions first — and then, as a last resort, require the unions to redo the contracts.”
Obama’s pressuring out GM Chief Executive Officer Rick Wagoner took most of the headlines Monday, but it wasn’t the most important move the administration made, according to John Berlau, director of the Center for Investors and Entrepreneurs at the pro-free-market Competitive Enterprise Institute. The government forcing out executives “has been done before,” Berlau said, pointing to President George W. Bush’s ouster of AIG CEO Robert Willumstad, and, even before bailouts — former New York Attorney General Eliot Spitzer pushing out Willumstad’s predecessor, Hank Greenberg.
Demanding Chrysler merge with Fiat may have the furthest-reaching implications, Berlau said. “Saying whom you merge with is the most important part.” Berlau suggests the move has more to do with being green than saving the company, saying the Obama White House “would rather have Chrysler make little Fiats than big, ‘evil’ SUVs,” thus “putting social goals ahead of profitability.”
Heather Boushey at the liberal Center for American Progress praised the administration’s recent actions regarding Detroit as “a step for the government to take more responsibility” in this era of bailouts.
“The government this weekend is saying, ‘If we’re going to give you millions of taxpayer dollars, we need you to have a plan,’ ” Boushey said. Taxpayers “are investors moving forward, because the auto companies haven’t been able to do this on their own.”
Wall Street has not gotten the same sort of oversight, Boushey argues, suggesting that might change. Pointing to the increasingly intimate government role in the auto industry, she asked, “Is this the same thing we should be doing with the banks, and why aren’t we doing it yet?”
