PTFA (not Car Czar) to decide on $7 billion auto loan

Posted Feb 16th 2009 9:15AM by Peter Cohan
Filed under: General Motors (GM)

President Obama has decided to scrap the Car Czar who had been the point person for deciding the fate of General Motors Corp. (NYSE: GM) and Chrysler. The Car Czar was a role created but never filled by the previous administration to determine whether to loan GM $4 billion more and Chrysler an additional $3 billion or to force them into bankruptcy. Instead, Obama has created the President's Task Force on Autos (PTFA).

The PTFA will create a big committee -- co-chaired by Treasury Secretary, Timothy Geithner, and National Economic Council Chair, Larry Summers -- to make this decision. Specifically, it will include officials from the departments of Treasury, Labor, Transportation, Commerce and Energy. Members of the National Economic Council, the White House Office of Energy and Environment, the Council of Economic Advisers and the Environmental Protection Agency. And instead of a Car Czar, Obama has designated restructuring expert Ron Bloom, a former Steelworkers union advisor and current senior adviser to Geithner to do financial analysis.

Tomorrow is a big day for GM and Chrysler. If the car companies can present a compelling plan that they're "financially viable", then they'll get their money. And it looks like both of them are in the process of trying to negotiate cost cuts -- e.g., plant closures, the potential elimination of brands and thousands of job cuts. Last year, I proposed a six step plan to save $16 billion but I don't know if that plan or the one that GM and Chrysler will present could possibly keep them from collapsing if demand keeps dropping at the recent 40% to 50% rate.

I have mixed feelings about the PTFA. On the one hand, it will assure that every aspect of the auto industry's fate will be considered by the different government agencies that regulate its different parts. On the other hand, the internal jockeying for power and debates between the different departments will surely slow down the decision-making process and make it difficult to reach a conclusion.

But my hunch is that GM and Chrysler will get the new money they need. Given the nearly $10 trillion spent so far "rescuing" the financial system, $7 billion -- which is 0.07% of that total -- more for the auto industry is a small price to pay for keeping at least a million workers in the industry and related industries from adding to the ranks of the unemployed. And by forcing GM and Chrysler to restructure to get the billions in loans, the PTFA will increase the odds that these two can survive over the long run.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.

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Reader Comments (Page 1 of 1)

2-16-2009 @ 10:21AM

BHarrison said...

The "bottom line" is that Congress during the last several decades, and ESPECIALLY during the last eight years has succeeded in dismantling the economy of the USA by enabling and allowing corporate FRAUDS to substantially undermine the INTEGRITY of our economy. Since MANY of these Congressmen are still in Congress, and Congressmen like Barney Frank, Ms Pelosi, Mr. Reid, etc. are supposedly the "leaders of the recovery efforts', it is highly unlikely that anything will change; and that economic conditions will worsen.

It was these Congressmen and other INEPT, INCOMPETENT, and/or CORRUPT Congressmen who personally enabled and allowed the FRAUDS of the past.

What rational person really believes that these "CORRUPT" individuals are capable of doing anything productive to undo the harm that they have previously done?

2-16-2009 @ 10:56AM

knechod said...

This is the problem with dealing with such enormous numbers, we lose all sense of scale. There is one too many zeroes after the decimal on the percentage. $7B divided by $10T is 0.07%, but it doesn't make a difference! Even though it is 10 times more costly than stated, I can't really wrap my mind around it. But my government can?

2-16-2009 @ 11:50AM

babyraymond8 said...

We need to rebuild and support our manufacturing base in this country!! What ever it takes!! These jobs might not be for everyone but they are needed to keep our economy and security strong.I am sick of seeing American flags made in China. We need fair trade not free trade!!

2-16-2009 @ 1:16PM

ME said...

This is convenient timing. I wonder how long it will take to get these people seated and settled into their offices.

This buys a bunch of time for the auto makers to get their ducks in a row, which at present, they do not have.

I find it all rather dubious. Lets not forget President Obama, as the President-elect, had a hand in crafting this bailout for the automakers. I find it alarming that he is changing courses at this late point in the game. Its a little too convenient for his buddies at the UAW.

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Who knows, trading on the forex might be something you have a knack for. I'm not saying to trade with the company with the simulator, because you will have to research if/who you want to trade with. But, practicing with their demo account will teach you much... it's very fun too.