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Thursday, November 30, 2023
BOSTON, May 1 2009 (IPS) - The U.S. government will invest billions in Chrysler and the United Auto Workers (UAW) trade union will become majority owners of the company, in a financial rescue deal announced Thursday by the White House.
“We’re going to make the U.S. auto industry the best auto industry in the world,” U.S. President Barack Obama said Thursday, after a month of speculation about a Chrysler deal.
The White House will give more than 6 billion dollars to Chrysler as it goes through a “quick bankruptcy” and revamps its operations. Canada will give about 2 billion dollars to Chrysler.
Chrysler’s management will step aside and the company will be run by Italian carmaker Fiat and a new board of directors. Its target is to make modern, fuel-efficient cars in Detroit, Michigan, the seat of U.S. car manufacturing.
“The necessary steps are being taken to give one of the most storied automakers, Chrysler, a new lease on life,” Obama said.
The car-maker’s union, the United Auto Workers, will become 55 percent owners of Chrysler. The UAW agreed to further wage and benefits cuts but retirees’ health benefits are preserved under the plan worked out between Chrysler and the White House auto task force.
“I will tell you that the workers at Chrysler have made enormous sacrifices – enormous sacrifices – to try to keep the company going,” Obama said Wednesday at a public appearance.
William Black, an economist at the University of Missouri, said the U.S. had to save Chrysler or General Motors. General Motors will deliver its restructuring plan to the White House by Jun. 1.
“For both to go down could really send unemployment into dangerous spiral,” Black told IPS.
But Black said he and other progressive economists believe the financial industry needs a big overhaul if the U.S. economy is to get back on safer ground.
Big banking has expanded to the point where it makes up 40 percent of the U.S. gross domestic product – and it is in a disastrous condition and is jeopardising the entire economy, Black said.
“Fixing the auto industry is important but revamping the financial industry is critical,” Black said.
“Our economy is profoundly screwed up. The finance industry destroyed wealth and ruined the economy,” Black told IPS. “We should try to make the financial sector far smaller,” he said.
“If we did the same for the financial industry as we’re doing with the auto industry, we would have put hundreds of banks in receivership, and refused to bail out certain asset lines,” Black said.
The big banks need the same treatment as the auto industry and more – CEO’s tossed out and big salaries slashed, operations made leaner, and the entire sector downsized, Black said.
After a storied past, Chrysler and General Motors were led by bad management decisions to make many poor quality vehicles that were easily outpaced by foreign brands, like Honda and Toyota.
“The problem was they were bad manufacturers. It took decades for them to [destroy] the cache they once had,” Black said.
Black likened U.S. car manufacturing to U.S. steel production. Once a giant in the global economy, it grew inefficient compared to modern, Japanese manufacturers.
“The U.S. got killed. The Japanese absolutely wiped out the U.S. competition.” Today the U.S. steel industry is profitable, but small and specialised.
“To follow that model you’d be breaking off brands with a cache and making them better, and greener. That does seem to be sort of where Obama is going with this,” Black said.
Greenpeace will try to convince Obama to build an entirely new, clean technology base in Detroit.
“It’s not just a question of cars, it’s a question of giving Detroit the resources it needs to compete in clean technology, which is the next growth industry in the world,” Michael Crocker, Greenpeace spokesperson, told IPS.
“We need to retool Detroit to make photovoltaics, wind turbines and a suite of energy efficient technologies that produce low- or no carbon,” Crocker said. “We did it in World War II and we can certainly do it again.”
Joseph Romm, a deputy assistant secretary of energy during the presidency of Bill Clinton, said U.S. cars need to be very fuel efficient to make a difference in global warming.
“Vehicles need to meet the California fuel economy standards. We need hybrids and plug-in vehicles,” he told IPS.
Chrysler and General Motors already received 17.4 billion dollars in low-interest loans during the administration of former President George W. Bush.
They then approached Obama for more funds and he agreed, but only if they would re-organise and begin making better, and fuel-efficient cars. General Motors, considered the stronger company, has until Jun. 1 to file its overhaul plan to the White House. Ford, the third major U.S. car company, declined White House assistance.
Over the years, Chrysler turned to creditors for loans, and today its ownership is a tangle of banks, hedge funds and investors. On Thursday it was announced that Chrysler’s major creditors, JPMorgan Chase, Citigroup, Morgan Stanley and Goldman Sachs, will accept 33 cents on the dollar for their original investments of about 4.83 billion dollars.
The four big banks have themselves received tens of billions in aid from the U.S. Treasury for their bad deals in mortgage securities, so it is not surprising that they agreed to the White House-Chrysler plan to write down the car company debt.
Another group of creditors refused to write down their 1 billion dollars in loans to Chrysler, forcing it to go to bankruptcy court to write it off.
“I don’t stand with them. I stand with Chrysler’s management and employees,” Obama said.
When it comes to finances, Chrysler and General Motors are far from old-fashioned U.S. manufacturers. Both expanded into money-making, financial activities and complex affiliations that rival any of today’s better-known financial institutions.
GMAC is a financial company affiliated with General Motors. GMAC and its related entities make car loans, personal loans and mortgages. It is one of the nation’s biggest mortgage lenders. In 2008 it was financially unsteady, and held more than 2 billion dollars in debt. GMAC has been hit with many lawsuits for questionable mortgage lending practices.
In December 2008, GMAC was allowed by the George W. Bush administration to become a bank-holding company, to be eligible for U.S. Treasury bank bailout funds. GMAC then asked for and received 5 billion dollars from the U.S. Treasury.
GMAC announced Apr. 1 that it would make 5 billion dollars in loans available to car buyers, even those with poor credit. Thursday it was announced that Chrysler Financial will be swallowed by GMAC, and that GMAC will provide financing for Chrysler car loans. The U.S. government will assist GMAC as necessary.
“If you are considering buying a car, we hope it will be an American car. The warranty will be fully backed by the U.S. government,” Obama said.
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