According to an article today The White house forced GM CEO Rick Wagoner to resign yesterday which he did – and is expected to announce new aid for GM and a 60-day deadline to restructure. At the same time Chrysler LLC apparently will get up to U.S.$6 billion and 30 days to complete an alliance with Italian automaker Fiat SpA. Persons familiar with the plan said Sunday the U.S. Administration will demand further sacrifices from the automakers and bankruptcy would be possible if they fail to restructure. The article reports the plan that will be presented includes government backing of warranties for Chrysler and GM vehicles to give consumers confidence, and that the administration did not view Chrysler to be viable as a standalone company.

I am surprised that the U.S. Administration is taking the position it is with Chrysler, am surprised with its demand that Wagoner resign, but otherwise am not surprised with the position it is taking with GM. Assuming President Obama’s announcement today parrots what has been reported, I am sure the U.S. Administration realizes that from a business point of view it puts it between a rock and a hard place in the context of the decisions it must make in the self-imposed deadlines of 30 days (Chrysler) 60 days (GM) it may proclaim. If a merger is not struck between Chrysler and Fiat within 30 days, or if GM is given a further extension on the its restructuring plan after 60 days the U.S. Administration will – at least in my view – lose credibility with respect to the positions it takes on the economy generally. I think saving both these companies is of huge importance to U.S. (and for that matter Ontario and Quebec) employment – both direct and indirect, and in my view if many of those jobs are lost that will exacerbate the current U.S. (and world) economic problems.

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An article titled ‘Geithner won’t say if more bailout money needed’ says “U.S. Treasury Secretary Timothy Geithner said Sunday the government will have about $135 billion left (of the $700 billion approved last October) after banks give back some bailout money and declined to say whether he will ask Congress for more”, and the “Treasury expects the banks this year to return about $25 billion of money that they received from the government, because they were able to replace it with private capital or decided that they do not want money with strings attached”. However, Geithner is reported as having said the banks still need help and that “A core part of our plan involves making sure banks have enough capital to provide the lending we’re going to need to get recovery back on track”.

I love this: the article says that “A few banks, unhappy at limits on executive pay and other government scrutiny that has accompanied the bailout money, have said they intend to return the money to the Treasury”. That these banks ask for and took the money in the first place, and now are reported to be returning the money for the reasons stated seem so absurd to me that I can’t believe it to be true.

On a separate note, the article says President Obama and Geithner are traveling to London to attend a one-day G-20 session on Thursday where a commitment for increased funding for the IMF is widely seen as likely to be agreed.

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An article today titled ‘The Dollar’s Tipping Point’ questions whether the Fed’s March 18 move to buy up to U.S.$300 billion in long term treasuries and bonds will “change the world as we know it”. While I seriously doubt any one event will do that, it is in my view a ‘directional move’ that has been done for reasons I don’t fully understand and with consequences I can only speculate on (I expand on this later in this post). The article’s author, Jennifer Bawden (Bawden Capital, a the technology and private equity consulting firm) says – based on data taken from Martin Weiss (Money and Markets) – government funds committed to economic ‘rescue’ plans by world governments so far is close to U.S.$13 trillion, and credit default swaps total over U.S.$57 trillion. Ms. Bawden, assuming I have interpreted her comments correctly, in the recent past has thought:

• (paraphrased) “the thought that you will not even hear whispered is that an unhinging of the reserve currency could happen and that would cause financial panic, plummeting stock markets, oil to rise way over U.S.$100 a barrel and the gold price to quickly jump over $1000 an ounce as investors seek protection in safe havens”;

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An article today titled ‘White House planning more auto financial aid’ says the Obama administration is completing a plan to give more financial aid to Chrysler and GM in return for tough cost-cutting measures ‘that will ensure the companies’ survival’ – this as the article reports the companies are running out of money headed into April, and that Task force members have said bankruptcy could still be an option if the management, workers, creditors and shareholders of the two companies fail to make sacrifices (presumably satisfactory to the Administration). Chrysler and GM are reported to employ about 140,000 workers in the U.S., to have already received $17.4 billion in government loans, and to be seeking a further $21.5 billion (GM $16.6 billion and Chrysler $5 billion). President Obama is scheduled to make an announcement tomorrow.

Those of you who visit this blog on a regular basis will know this comes as no surprise to me. I have repeatedly said on this blog that I will be astonished if the U.S. Administration to say ‘no’ to the auto industry. Again, it is not just the aforementioned 140,000 Chrysler/GM jobs that are at stake, but all the other auto industry and ancillary jobs (suppliers, car dealership, and backlash into retail and other jobs supported by wages earned by direct and indirect auto workers) that are at stake here. I think it likely there are other ‘auto industry related’ problems looming on the horizon, not the least of which is the significant drop (as I understand it) in trade-in values that have made the ‘trade difference’ experienced when buying a new car ‘off the lot’ greater in some/many instances than it historically has been. I also think there are a number of chapters yet to be written before the U.S. auto industry ‘story’ is complete, and that the multiple authors of that story (the U.S. Administration, the auto companies, the auto parts suppliers, the auto dealers, and U.S. consumers) themselves don’t know how the story is going to end – stay tuned.

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