Only White House Can Save GM and Chrysler

After the American Senate rejected the 14 billion dollar emergency credit, GM and Chrysler can only count on an intervention from the White House to survive financially. Republican senators refused Thursday night to give their blessing to a bridging loan of 14 billion dollars because the guarantees for the savior plan for the car industry were insufficient. It is unlikely that the Congress will take a decision before the inauguration of Barack Obama, on January 20th next year.

Gambled and lost. That is more or less the summary of the drama that played out in the American Senate last night. The Democrats, with the support of the White House, hoped to push through an emergency credit for the car industry. It concerned 10 billion dollars for GM and 4 billion dollars for Chrysler. The third car manufacturer, Ford, does not have liquidity problems at this moment and was not begging for money. In the end, the ‘Big Three’ will all need money.

But the Republican senators were not to be mollified. Finally, 52 senators voted in favor of an emergency credit and 35 against the emergency credit. A special majority of 60 senators to 100 was needed for the approval of the savior plan.

Satisfied

The Republican Party already mentioned repeatedly that they were not satisfied with the conditions connected to the emergency credit. According to them, too few guarantees were inserted. The Republicans fear that they are going to give tax money to companies that are already convicted anyhow. According to them, the government should not have to suffer for the mistakes that management stacked up for years already. Despite the fact that the three large manufacturers directly employ 250,000 people and other hundreds of thousands in the supplying companies, the senators directed the proposition to the garbage can.

A special breaking point was the demand to the giving in of salary. The Republicans demanded that the salaries of the employees of the three big manufacturers would be reduced to the salaries that the foreign manufacturers in the U.S. pay their employees. That would come down to a reduction of at least 20 percent for the involved employees. That demand was unacceptable for the powerful United Auto Workers union.

Finished

The leader of the Democratic senators, Harry Reid, said that it was finished. According to him, the visions were too far apart of find a compromise. “This will be a very bad Christmas for very many people,” a sad Reid said.

GM and Chrysler are now on the verge of the abyss. GM already said that it urgently needs money to survive. So far, GM refused to go into settlement. The so-called Chapter 11 temporarily protects a company against the creditors. It is possible to make restart from settlement. Meanwhile, GM has hired experts to investigate all options. For Chrysler, it is even worse, if possible. Specialists assume that the smallest of the three manufacturers is already doomed to bankruptcy. The fact that they do not get an emergency credit unavoidably causes Chrysler to look for Chapter 11.

White House

The only way out is for the White House to intervene and prevent a catastrophe. The Democrats hope that the White House will draw from the 700 billion dollars that are set aside to save the financial sector. The first envelope of 350 billion dollars has been approved. As per the latest calculations, 15 billion dollars will remain from that, just enough to support GM and Chrysler.

So far, President George Bush was an opponent of the use of the special fund for the car sector. Equally, Secretary of the Treasury Henry Paulson is not in favor of such an intervention. But the pressure will increase meanwhile to give money to GM and Chrysler after all. The White House is no studying all options, but it is still too early to say whether President Bush will show up as savior.

Specialists think that filing for Chapter 11 could be healthy for the companies involved. That way, they can look for a sustainable model on a new base. The American car manufacturers are now being blamed that they have dedicated themselves too long to expensive, big models that are no longer popular. The industry supposedly chose the road to environmentally friendly cars too late.