Is the bailout just a band aid?


Wow, how about the pump-fake that ol’ Mr. Bush pulled on us all, huh?

On Thursday the White House was playing up the possibility of an ‘orderly bankruptcy’ for the Detroit automakers. Bush even said,

Under normal circumstances, no question bankruptcy court is the best way to work through credit and debt and restructuring.

Then the influence and pressure of the Big 3 and the UAW kicked in, who called the idea “unworkable and dangerous.”

Never mind the fact the majority of the Americans were against a bailout, as was Congress who voted not to bail out the automakers. Even the president was considering bankruptcy as the best option to allow a complete reorganization of the auto industry. 

Then something happened and Bush abruptly threw to the other side of the field. Maybe his decision was partly the influence of Chrysler’s desperate ploy of playing up their upcoming month-long plant closure; portraying themselves as victims because people weren’t buying their cars anymore. (If they were any other business they’d react by decreasing the size of their business, not whining to the government that they’re out of money.) 

President Bush’s $17 billion bailout does come with considerable restraints though, the biggest of which being the question of viability. According to the White House, “A firm will only be deemed viable if it has a positive net present value, taking into account all current and future costs, and can fully repay the government loan.”

If, by March 31, 2009, any of the companies are not deemed viable, the loans will be called and bankruptcy will likely result. Can GM or Chrysler achieve a “positive net present value” by spring and avoid having to give back the government’s money? I have my doubts.

This bailout seems like President Bush’s way of saying, “Hey, good luck President Obama. The automakers didn’t collapse on my watch, so now it’s your turn!”

Even though he believed it was the better option, I don’t think President Bush wanted to oversee a federally orchestrated bankruptcy process this late in his administration. The bailout option was easier and provided a nice band aid that would last until the next president could make the final decision. 

Do you think at least one of the Big 3 will still end up in bankruptcy come spring?


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