Daniel Howes: Commentary

Wagoner admits to 'Plan B:' Bankruptcy

The chairman of the Senate Banking Committee , Chris Dodd, D-Conn., got it right Thursday: "We're looking at a death sentence here if we don't respond intelligently and prudently."

Day One of Round Two in Detroit's automakers go to Washington may have been blessedly light on cheap political theatrics. But it was heavy on the preliminary what-if deal-making that could determine whether General Motors Corp. and Chrysler LLC can wrest a combined $25 billion from Congress to make it past New Year's Day -- or not.

This much is clear:

GM, which says it needs $4 billion within days to keep funding operations, is the sick man of industrial America driving the lame-duck frenzy in Congress to find a solution. The alternative -- a rush into federal bankruptcy court -- would be even more economically devastating, experts told the committee.

Second, an increasingly desperate GM does have "a Plan B," despite repeated claims by GM Chairman Rick Wagoner, GM's lead director, George Fisher, and President Fritz Henderson that Chapter 11 bankruptcy filing is not a "viable option" for the No. 1 automaker. Oh, but it could be, Sen. Bob Corker, R-Tenn., learned by pressing Wagoner.

If GM, the United Auto Workers and the automaker's bondholders failed by March 31 to rework GM's labor costs and restructure its debt-laden balance sheet -- two core goals of many bankruptcies -- would Wagoner agree to pay the loans back in full (from what?) or file for bankruptcy?

GM-Chrysler deal revived

"Yes, I would," the GM CEO replied, with almost no hesitation. Bingo. Corker uses the specter of bankruptcy outside of bankruptcy to get a bankruptcy-like result -- a nice trick if the rest of Congress buys his logic (debatable) and if negotiations unspool as he envisions.

Third, Chrysler almost certainly will not survive this shake-out and remain an independent automaker, a fact punctuated by the (not necessarily new) revelation that Chrysler's owner, Cerberus Capital Management LP, is not interested in pumping more money into the automaker; that Cerberus acquired Chrysler to access its captive finance company; that Cerberus is looking to foist Chrysler (or whatever assets it can) on a would-be partner.

Fourth, Wagoner and Chrysler CEO Bob Nardelli are willing, if not financially able, to explore what would be a government-brokered merger of the two. An on-the-mend GM, implicitly backed by federal dollars and oversight, would absorb Chrysler's most valuable assets, discard the rest and Michigan would take the biggest hit.

Fifth, Ford Motor Co.'s we're-just-here-to-lend-support act is working, enhanced by a larger cash hoard and Executive Chairman Bill Ford Jr.'s professed politicking of President-elect Barack Obama. GM is the basket case, Chrysler is the dead company walking and Ford is the least troubled for now -- a familiar spot with its long history of letting GM take the lead on tough issues in Washington.

Sixth, the UAW and its members are pawns in the ideological battle between southern Republicans like Corker and Democratic leaders like Dodd, among others. Specifically, Corker insists nothing short of absolute wage and benefit parity with foreign-owned rivals -- by March 31 -- would be sufficient to justify federal money.

More scrutiny, less money

For Dodd, as he said at the end of a nearly six-hour hearing, the UAW is the "only" member of the Detroit Four that has committed "to do" something. Not true, demonstrably, considering the details of the three plans submitted to Congress and, second, their individual track records of restructuring.

But the political import of Dodd's statement speaks for itself, and signals that some form of bridge loans from Congress or cash infusion from the Treasury Department are likely to come to stave off the collapse of GM and Chrysler. Together, their failure would deal a mortal blow to the UAW's promise and its institutional viability.

This much also is certain, too: A growing number of senators who OK'd the $700 billion Troubled Asset Relief Program to bail out financial institutions sound unhappy. They watched AIG get $150 billion, then hold conferences at posh resorts. Citigroup got $20 billion on a Sunday afternoon, but CEO Vikram Pandit was not forced to submit a business plan or drive to Washington from Manhattan to be grilled by the Senate Banking Committee.

"You people have been put under far more scrutiny for far less money," Sen. Jon Tester, D-Mont., told the Detroit Three CEOs. He's right.

Daniel Howes can be reached at (313) 222-2106 or dchowes@detnews.com or detnews.com/howes. Catch him Fridays with Paul W. Smith on 760-WJR.