Once More, This Time with Feeling

Let’s dig into some of the headlines we saw this morning:

GM, Chrysler Push for More U.S. Aid After Legacy of Mistakes (Bloomberg)

Auto Maker Bankruptcy Looms (Wall Street Journal)

“YOUR TIME IS UP” (Steve Parker, the Car Nut)

The Tres Amigos are not showing up in person this time; two of them (Chrysler and GM) will be filing their reconstruction plans electronically late today. That is a good thing, as we don’t need another circus. They are probably having their own private circus with the UAW as the bargaining continues in Detroit over the $47 billion GM obligation for retiree health care. Yikes.

The money involved in all this is truly mind-boggling. It’s not just the industry’s tremendous fixed and legacy costs, its expensive and inefficient dealer network, its total fall-off in sales. As Bloomberg reminds us, it’s the cost of rebuilding that also must be built into any plan.

GM and Chrysler must show progress in getting creditors and the UAW to accept equity in place of billions of dollars in scheduled cash payments. The automakers must also ensure that future models will meet environmental rules that may require $100 billion in new technology.

The real deadline for the GM and Chrysler plans is March 31, when President Obama’s car task force (the car czar idea is out) will determine whether and how the industry goes forward. Heavy hitters Tim Geithner, Treasury Secretary, and Lawrence Summers, National Economic Council chairman, will have help from others.

One of these is Ron Bloom, an expert in restructuring whose advice, we can predict, nobody will like. Says the Journal,

Mr. Bloom, a Harvard Business School graduate who spent 10 years at investment banks before joining a team advising the steelworkers union, is seen as one of the chief architects of a consolidation of the steel industry that has involved about 35 bankruptcies over several decades. He’s known as a blunt communicator. . . .

In a 2006 speech at a corporate turnaround conference in Scottsdale, Ariz., he described his approach to restructuring as “dentist-chair bargaining,” in which the patient “grabs the dentist by the b — and says, ‘Now let’s not hurt each other.’”

Under Mr. Bloom’s guidance, the United Steelworkers gave up pay, job security and benefits in a bid to help the industry recover. In some cases, thousands of steelworker jobs were lost when union leadership agreed to large-scale reductions in restructured companies. Mr. Bloom also negotiated benefits for union members and retirees that kicked in once reconfigured steel companies became profitable. Such solutions could also come into play at the automakers.

Finally, Steve Parker. After showing us a picture of dictator Benito Mussolini in his Alfa Romeo and reminding us how the crowd pulled him out and hanged him, Steve offers this tidbit about the impending Fiat-Chrysler deal:

Last week, a right-wing legislator in Italy called for public protests if any Italian money is used to pay Chrysler’s debt to taxpayers. Their government essentially owns Fiat and all its ancillary companies, and it’s the country’s largest manufacturer of any kind. Even a loan—or money used by Fiat to purchase Chrysler—may well be seen by Italians as their taxes going to the U.S. government, which is probably one reason Chrysler is willing to cede control of the company to Fiat for not one penny—or lira.

You and Ron Bloom both realize that there are 3 million jobs tied to the U.S. auto industry. How are you going to save them?

—jgoods

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