GM-Chrysler Bailout: Was It A Blank Check?

WASHINGTON — To hear President Barack Obama's account of the government's rescue of General Motors and Chrysler, you might think the Bush administration handed the automakers a big blank check – billions of dollars in loans with no strings attached.

Obama, defending his administration's relations with the business community on Monday, said the White House knew the bailout of GM and Chrysler would be unpopular with the public but was crucial to preserving 1 million jobs. He said his administration forced the auto companies to make drastic changes in return for the money, unlike his predecessor.

"Now keep in mind the previous administration had been helping them, giving them billions of dollars, and just asking nothing in return," Obama said in a CNBC town hall meeting. Not exactly.

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EDITOR'S NOTE – An occasional look at assertions by public officials and how well they adhere to the facts.

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President George W. Bush's administration, only weeks before leaving office, gave GM and Chrysler $17.4 billion in loans after legislation to speed loans to the companies failed in Congress. The Dec. 19, 2008, terms signed by GM and Chrysler required them to reduce their debt levels, negotiate wage and benefit cuts for auto workers and submit detailed restructuring plans by Feb. 17, 2009, showing a path to "long-term viability, international competitiveness and energy efficiency."

By the end of the Bush administration, both companies were running out of money and there was no time for drastic restructuring. In all likelihood, forcing the companies into bankruptcy in December 2008 would have led to liquidation, making the Bush loans a lifeline to keep the companies afloat and buy more time for an overhaul.

Some critics have questioned whether the Bush requirements were tough enough. The loan terms instructed the companies to file restructuring reports by March 31, 2009, including "any deviations from the restructuring targets." That was to include an explanation why failing to meet the specific terms would "not jeopardize the borrower's long-term viability."

But the companies still faced a looming checkmate: The Bush loans gave the Obama administration the ability to recall the loans if the conditions weren't met, which would have essentially forced GM and Chrysler into bankruptcy.

"We knew that we were the front part of the arrangement and that we would not be there to enforce the terms of the loan," said Keith Hennessey, a former Bush economic adviser. "Our team wrote the terms of the loan to be tightly binding on the firms and specifically that the loans had to be repaid to the Treasury unless the conditions were met."

The Obama administration pumped billions more into the car makers but gained concessions from company stakeholders and pushed GM and Chrysler through quick bankruptcies last year.

Both companies have shown signs of a comeback. GM has posted two straight profitable quarters and is expected to conduct an initial public offering later this year that would help the U.S. reduce its 61 percent stake in the company. Chrysler, placed under control of Italian automaker Fiat, has narrowed its losses and is considering a public stock offering sometime in 2011.

Obama and White House officials have made similar claims about the auto bailout before.

In a July 30 visit to a GM plant, Obama described three options to address the near GM and Chrysler collapse. "Option number one was to keep on doing what the previous administration had been doing, which is basically give about a billion dollars a month to the auto industry, but not really ask for any kind of change that would get it on the right track," Obama said.

White House chief of staff Rahm Emanuel said in a June interview with ABC News' "This Week" that "in the case of General Motors, the prior administration wrote a check without asking any conditions of change." Austan Goolsbee, the new chairman of the White House Council of Economic Advisers, said in a Fox News Sunday interview in June that the White House was confronted with the distressed automakers "because somebody else kicked the can down the road."

In his new book, "Overhaul," Steven Rattner, who led Obama's auto task force, credits the Bush team for giving the incoming auto task force "a little breathing room" to restructure the companies and for providing a framework of "expected sacrifices that paved the way for our demands for give-ups from the stakeholders."

Comments

[1947]

11:47 PM on 09/22/2010

No, it's not a bailout. It's "Obama Motors." Your government car dealers

[ChangingTimes]

11:30 AM on 09/22/2010

Interesting yet powerful article.

It would be interesting to know what other industries and/or companies that the Obama Administration views as "too big to fail". It would also be interesting to see what the end result of all the bailouts will be on the American taxpayer years down the road. While I am all for saving as many jobs as possible, why is it that companies, that is large corporate political donors such as GM always seem to get a handout?

Where are our handouts for years of hard work as everyday Americans?

[James Benjamin Bleeker]

02:53 AM on 09/22/2010

The end result of the GM-Chrysler bailout may prove to be:

1. A denial of re-employment of laid-off Ford workers,

2. A punishment of Ford Motor Company - its executives, its employees, and its shareholders - for nearly two decades of quality improvements (http://ezinearticles.com/?Car-Quality-Rankings-2010---Change-in-Automobile-Manufacturer-Quality-Standings-May-Take-Decades&id=5019276 ),

3. A saddling of unsuspecting consumers with vehicles from GM, with an overall Car Reliability GPA of 1.35 and a Reliability Grade of D, and Chrysler, with a GPA of 1.08 and a Grade of D (http://carsoninfo.net/TheUpdated2010CarManufacturerReliabilityGradePointAverages.aspx ).

So, arguing whether or not the Bush folks had strings, ropes, or cowboy boots seems less than perfectly pertinent.

[daultman463]

02:00 PM on 09/22/2010

So true James.I work for ford and i`m usually an opimistic person but this Gm deal has us a little worried.Watch the money going to GMAC and you see what is the problem my friend.GM has run 0% for 18 months on all the car lines

[mashtoe]

01:37 AM on 09/22/2010

Ok, so Obama is just admitting that these corporations are too big to fail. His only justification is that a bunch of people would lose their jobs. So this means you can run your business as poorly as you want and get bailed out by taxpayers if you are a big corporation. So we are corporate communist. There is just no doubt about it.

[familydamato]

09:07 AM on 09/21/2010

Where is the bailout for "We the People"?

[KenGirard]

05:05 PM on 09/21/2010

You see those million auto workers still getting a paycheck, and the folks providing them with materials, and feeding them, and car dealers selling folks the cars they make, and all those people working at companies all those people spend their paychecks at?
That is the bailout for "We, The People".

Where do you think the economy would be with all those people (Around 2 million) also out of work?

[Patriot86]

06:35 PM on 09/21/2010

It saved millions of jobs ...and since the banks don't lend despite their taxpayer money...it is the only thing that reached average Americans. Those loans which will be paid back made a huge difference in Northeast Ohio...so byte me.

[Better Better]

08:00 AM on 09/21/2010

In June we imported 10 million barrels of crude oil per day. That's $760million per day leaving the country. By year end it is $1billion per day. If we drove more fuel efficient cars and instead spent $1billion per day in the US economy, there would be no recession. That would be a like a $365 Billion stimulus package every year

[KenGirard]

05:16 PM on 09/21/2010

Put a solar panel on every roof top and parking lot in every major city, and we could change the world. My company has 3.5 acres of parking lot that does nothing but hold cars, and get hot. Put raised solar panels over it, and we could make enough electric to run the entire 3 story office building, and have some left over to sell. Across the street is a 5k seat ampitheater, and the parking for it, sitting empty 80% of the year.