Blog: Bailout rejected; where next?
Dave Leggett | 12 December 2008
I am a bit surprised that the $14bn emergency loan package for automakers was rejected in the Senate. Of course, the likely vote numbers didn't look good for the bill's backers to start with. But I thought enough pressure would be brought to bear (especially from the White House) and that there would be a sense of not wanting to take the risk of not doing it, that would have got it through.
And as is often the case, maybe some concessions would be made at the last minute to appease opponents - and that seems to be where Bob Corker came in - to carry the day (and Corker's apparent conversion from being pro-Ch 11 to favouring a deal speaks volumes). Is the UAW really to blame? I don't know enough about the politics going on there, but I note that some are claiming the UAW stuff identified a convenient bogeyman for those who had other reasons for not wanting the bill passed.
But it does sound like the bill came close to winning enough support and I am surprised that it could be rejected by some - if I read this right - simply on the grounds that the UAW wouldn't agree right now to wages parity with Toyota et al in 2009 rather than in 2011. Couldn't that subject be returned to later in Q1 when the companies were supposed to get their full restructuring plans worked through - or be made to file for Ch 11 on March 31 - the whole shooting match overseen by a 'car czar'? This was supposed to be step one to keep the lights on.
The big question this morning is obviously this: what happens now? Chapter 11 must be a much more likely prospect for GM, given that it has said it will run out of money before the end of this month without an immediate $4bn cash injection (with a further $4bn needed to carry on next month). And the initial political reaction seems to be that the bill is dead and that's that until January. Can a small part of the $700bn Wall Street bailout money be made available? GM's immediate $8bn need would constitute just over 1% of that total - doesn't sound like much does it? What can GM itself do this month to stave off filing for Chapter 11? Is there a Plan B we don't yet know about even at this late stage?
And if Chapter 11 it really has to be, then how can that process best be managed to ensure that it doesn't make things worse and delivers the best outcome? (I see GM has hired a bankruptcy adviser.) Lots of questions.
It's not the end of the world. With the bill passed there were still going to be some very tough times and decisions ahead. That was a given, whatever happened. All the relevant actors need to focus on making sure that the baby does not go out with the bathwater now. If that happens, then the lawmakers in Washington and the industry's leaders will be collectively culpable for making things worse for many - not just in the US, incidentally.
What will Wall Street do today? In the minds of investors, the downside risks attached to the already fragile US economy just got significantly worse. Wherever you sit, that's surely not a good thing.
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