by John Bougearel ~ author of Riding the Storm Out
On Sunday and Monday, the stock market reacted negatively to the Obama administrations announcement that it was virtually throwing in the towel on both GM and Chrysler. They do not believe that Obama is giving them “one more last chance” as he disingenuously said this past weekend. That apparently has been unveiled to be largely a hoax by which to dupe us, and soundbite for public consumption.
Stories on Bloomberg are breaking that the Obama Car Czars are going to ensure bankruptcy for both GM and Chrysler.
What the Obama said was this “What the administration is asking for ‘will require creditors to recognize that they can’t hold out for the prospect of endless government bailouts. Unions and companies must also make sacrifices.’” And according to a summary report from the O administration, “GM’s best chance at success may include a “quick and surgical” bankruptcy.” An official from the Obama administration later tried to deny the Bloomberg report that the president thinks a bankruptcy is the best option for GM by stating, “This report is not accurate.”
Contrary to the white house officials denial, the proceedings going on at Chrysler indicate that the 30 day grace period given to Chrysler is just an opportunity to prepare for bankruptcy 30 days hence. According to yet another Bloomberg story on March 31, “Chrysler LLC may face an “impossible goal” in completing an alliance with Fiat SpA and meeting an Obama administration deadline to erase debt and win more union concessions by April 30. “It is an impossible goal,” said Sheldon Stone, a partner at Amherst Partners LLC, a restructuring firm in Birmingham, Michigan. “The likelihood is that the 30-day period is going to allow Chrysler to get their house in order for a bankruptcy.”
Obama’s Car Czar task force corroborates Sheldon Stone’s assessment stating, “Given the magnitude of the concessions needed, the most effective way for Chrysler to emerge from this restructuring with a fresh start may be by using an expedited bankruptcy process as a tool to extinguish liabilities.” If only Obama had a task force like this for the banking industry, we would be making real forward progress! But alas, that is not to be.
Market participants should note the timelines given for GM and Chrysler, come the end of April and May, we can expect stock market swoons in response to this. Additionally, if the treasury gets “resolution authority” from Congress, a bankruptcy of Citigroup may be tossed into the Obama’s political ring of fire – deciding what companies burn in hell and which ones survive.
