About a year after Tim Geithner literally top-ticked the economy with his first Op-Ed, "Welcome to the Recovery", which came days ahead of the QE 2 announcement, he has just released his Op-Ed #2 "A Rescue Worth Fueling" in the WaPo, in which he praises the administration for using billions in taxpayer capital to save a few hundred thousand union jobs. His bottom line: "The domestic automakers are getting stronger. For the first time since 2004, each has achieved positive quarterly net income." Perfect release timing: just as both GM and Ford announce a drop in monthly sales, and GM discloses record channel stuffing. If there is one call to fade and short all the US automakers, this is it.
A rescue worth fueling, published in the Washington Post
On June 1, 2009, General Motors filed for bankruptcy,
backed by $30 billion in support from the federal government. The same
day, in the same New York courthouse, a judge approved Chrysler’s plan
to forge an alliance with Fiat and emerge from bankruptcy as a
restructured business with an uncertain future.
Two years later, all three American automakers have returned to
profitability, the industry has added new shifts and 115,000 jobs, and
GM and Chrysler have returned more than 50 percent of the government’s
investment. The industry is mounting one of the most improbable
turnarounds in recent history.
This outcome was anything but
assured. In December 2008, the industry faced the prospect of
uncontrolled liquidations just as our financial system was reeling from
the worst financial crisis since the Great Depression. President George
W. Bush provided more than $17 billion in temporary loans to GM and
Chrysler to avert that disaster, but those efforts, while important,
were not enough. President Obama took office faced with an industry that
was burning and had to determine whether additional government support
In a series of meetings in early 2009, the
administration’s autos team sought to examine an interwoven web of
options and to highlight the risks each entailed. The companies needed
to make dramatic changes. Years of bad decisions had caused them to
progressively lose market share to foreign competitors, and the
financial crisis had dried up financing for almost everything,
compounding the collapse in demand for vehicles. It was not clear
whether there was a responsible way to put taxpayer dollars on the line
in a way that helped ensure the companies emerged stronger, not weaker.
challenges extended beyond GM and Chrysler. The restructuring of these
automakers could affect companies throughout the supply chain that
employed nearly 400,000 American workers. Ford and other automakers
depended on those suppliers, increasing the risk of damage if they
liquidated or moved overseas. With the credit markets frozen and no
major sources of private financing available, government inaction meant
devastating liquidations. Nonetheless, even a federally supported
bankruptcy could aggravate the situation by causing car buyers to lose
confidence. And the automakers realistically could have taken a long
time to emerge from bankruptcy. In the balance hung thousands of auto
dealerships nationwide and small businesses in communities with
concentrations of auto workers.
It was the uniquely deep linkages
between the auto companies and suppliers, dealers and communities that
led some experts to estimate that at least 1 million jobs could have
been lost if GM and Chrysler went under.
Ultimately, the most
difficult decisions centered on Chrysler, which was ailing even more
than its larger counterparts and was, we determined, no longer viable as
a stand-alone company. The choice was backing Chrysler’s effort to
partner with Fiat or letting the company fail. A rich internal debate
ensued. Our team presented the president with a range of stark options,
including the fact that standing behind Chrysler’s restructuring still
gave only a slightly higher than 50 percent chance of long-term success.
Nothing about the president’s call was popular. It may have been
more politically expedient to let Chrysler fail. But the president knew
that if Chrysler collapsed, tens of thousands of jobs would have been
shed in the near term — a body blow to an economy already on the ropes.
return for government support, we demanded tough concessions from
Chrysler and from GM — substantially tougher than had been proposed
before. They were forced to go through bankruptcy, clean their balance
sheets and adopt stringent plans to move toward profitability. We gave
the companies enough space to make sound business decisions and push
ahead as they would in a private restructuring. That meant sacrifices
across the board — from managers, unions, stockholders, creditors and
dealers. These investments offered Chrysler and GM a second chance but
also helped the workers, communities and suppliers depending on them.
six years earlier than planned, Chrysler has repaid its outstanding
government loans. While it has a long way to go, Chrysler has made
enormous strides. Tough decisions, stemming from the restructuring, have
helped Chrysler post five consecutive quarters of operating profit.
It has announced more than $3 billion in investments in plants and
technology since emerging from bankruptcy and is poised to hire back
The story has been similar for GM — and the industry as a
whole. The domestic automakers are getting stronger. For the first time
since 2004, each has achieved positive quarterly net income.
it remains unacceptably high, Detroit’s unemployment has fallen nearly
one-third over the past two years. The car companies are leading a
comeback in American manufacturing. And while we will not get back all
of our investments in the industry, we will recover much more than most
predicted, and far sooner.
What happens next for Chrysler and GM
is up to their executives, managers and workers — just as with any other
company. We cannot guarantee their success, and at some point they may
stumble. But we’ve given them a better shot. The choice to stop the
American automobile industry from unraveling was the right one.
The writer is secretary of the Treasury.
Apparently, the secretary of the Treasury is not only familiar with the US tax code, but with the definition of Channel Stuffing.