Obamanomics
Auto Politics…er…Policies

Yesterday was an insightful day on learning more about Obamanomics. At the deadline for Chrysler reorganization outside bankruptcy, 20 bondholders failed to agree with the government arranged Fiat-UMW-USA new Chrysler. So, Chrysler filed for the protection of the US Bankruptcy Court under Chapter 11 of the Bankruptcy Code.

Here is the in sight. The President demonized the bond holders, claiming a priority position, for not giving it to the government proposal. It was their fault that Chrysler went bankrupt because they were greedy hedge funds. Wow! These lenders gave Chrysler life in 2007. Now, they are the cause of the failure of Chrysler? What about years of mismanagement and a UMW that negotiated pay without work or production?

Now, in bankruptcy, the rule of law should prevail. So, if the 20 lenders really should have a bigger piece of the pie, they will be able to put forward their case. After all, they were only trying to protect their stakeholders. It appears that the UMW would be receiving a big stake in the “new Chrysler”, about 39% and the bondholders only 10%. No wonder they were steamed. Trade in $6.9B in loans for $2.25 B and 10% of the common stock of the company having a lesser stake than Fiat, UMW and the government!

The judge who handled the Enron case will have to sort out the claims. The President talks of a surgical 30-60 day bankruptcy. What? How can such a complex case be dealt with in 30-60 days? If that does happen, we need to be wary for the rule of law would not have been applied with its right to be heard and due process. Heaven help us if the heavy hand of the government can be used to make a federal judge bend to the will of the Obama Administration. Avoidance of such a thing was the reason the Founders separated the judiciary from the executive and legislative branches.

Why such an effort to save Chrysler in the first place? It is a failed business with a failed business model. This is the auto politics. The UMW, as well as all unions, were big supporters of BO in his election campaign. This is the payback. Keep Chrysler, as well as GM, afloat with taxpayer $, get the companies re-organized, and save as many union jobs as possible. By working out a 39% stake for the UMW in the “new” Chrysler, the UMW is now in an interesting position. As owners, they want cost cutting and efficiency; as labor they want high wages and benefits and relaxed work rules. For years it has been the latter that has ruled with a predictable result.

Maybe it will be easier for the OA to get its auto vision of small, high mileage autos running on ethanol, wind and electric as the standard for US vehicles if the government controls the auto manufacturers. And, if not the Administration, its close allies the autoworkers. It should be interesting to see how this plays out in court and for GM with their June 1 deadline looming.

One thing for sure, Obamanomics is not good for the capitalism that has led to prosperity in the country. Control of more and more of the private sector by government sure does not make folks anxious to invest into private capital. It keeps people holding cash. It is mystifying to me that this same Administration that wants private capital to help in a government partnership to buy the asset backed securities ruining the banks lambastes private capital that helped Chrysler float the last two years as the cause of their bankruptcy. What are they thinking? That’s the problem with policies based on politics…they are inconsistent and not based on anything except raw political power. What a way to run a railroad, an auto company or an economy.