Obama administration has rejected the auto bailout for all the three companies saying the plans submitted by the companies are inadequate. The Obama Whitehouse has also asked the CEO of GM to step down in the process, rising eyebrows as to why make GM CEO Rick Wagoner the fall guy.

Nevertheless, the Obama Whitehouse has its own plan for the automakers. The Whitehouse will ask for 22 billion as restructuring costs for the three automakers GM, Ford and Chrysler. The plan also includes  sale of Chrysler to Fiat with the Whitehouse taking part in the process. Looks more like Obama whitehouse wants to run the automakers.

One should not be surprised if the people in new management are Democratic donors or heavily union friendly. Afterall , it was the unions that got him elected in Michigan in the first place.

It may be good for GM CEO to go, but I am not sure if the Obama whiteshouse should take over and try to run the Auto industry. Instead of this industry , they could have taken over the banks and cleaned them up, it would have fixed the economy faster.

More details are reported by McClatchy.


Obama administration today asked GM CEO Rick Wagoner to resign. May be this is good from one point , as there is much to say about Rick Wagoner’s management skills that have now turned out well for the company. GM has lost much ground in the auto sector and losing ground auto sector to the international competitors. May be with him going the company will move in the right direction faster.

But at the same time why just Rick Wagoner, why not Wall Street CEO’s who have taken in trillions, not few billions like GM. Why only GM CEO, what happened to Ford CEO or others. Will Obama administration ask CEO’s to resign who are not republicans?

There are always two sides to a story..  this is not looking very good to me.

More here on Bloomberg and politico.

This is what I found on Meghan McArdle blog link.

We are now well aware of the trouble the big three automakers GM, Ford and Chrysler are in.  But things have turned bad for them this week. The big three did not get a bail out this week. Now things are looking more dire for GM. The company board of GM is considering a bankruptcy option. It might help but if things don’t work out GM will go down fast. What a strange story here, companies which have survived the world war II and the great depression are falling like domino’s for the credit crisis.

More on the bankruptcy is on Reuters.

UPDATE 2: A senate compromise has been reached. But not in the house and bail out of automakers could face serious challenges in the house of representatives.

UPDATE: Things have turned for the worst. The vote is canceled for this week and vote will occur only when there is an agreement. I hope things get better. AP report can be found here.

After all , there may be some hope for the Detroit. Reuters reports,”

Senate’s Reid says Senators Levin and Bond are trying to come up with an alternative proposal for auto aid; Senator Bond, a Missouri Republican, says “we’ve made great progress” on possible auto aid compromise bill.
Nov 19 6:00pm EST”

Let us hope something is done which is in the best interest of the economy.

Over the past few days, the interest for the auto bail out has decreased. The democratic senators have openly declared that they do not have the necessary votes. In the lame duck session in congress , there is no momentum for the auto bail out. After Ford declared that they can sustain a few more months than GM, I think there is resistance to the bail out.

Some are asking the big three to go under Chapter 11.

I don’t think under the current economic conditions that is a choice. The companies should come up with a plan. A complete restructing of the companies and new models for cars- European style  lean and mean cars- the ones opel(which is owned by GM) makes.

I think GM and Chrysler will go down in a couple months. I see no future there. Necessity is the mother of all inventions- now the big 3 have to  be innovative to survive.

There is a growing debate in the halls of Washington, whether to bailout the ailing auto-industry. Some interesting columns have come out in the mean time.

Some are for the bailout with conditions and others are saying – “hell no”. Auto industry in US is one of the largest, next to oil and gas industry. Jobs in the industrial mid-west are mostly connected with this industry. This industry is so big, that nearly 1in 10 workers in America are connected in some manner with this industry.

The – “hell no” case:

American cars are gas guzzlers. The market space for fuel efficient cars is taken by the Asian cars, such as Honda and Toyota. The Honda’s and Toyota’s are cheaper, low maintenance , consume about 1 gallon for every 15-20 miles. So the question arises- why is Detroit making gas guzzlers ? Simple answer- that’s all they know, Probably? The management and the Unions are locked in battles , the designs have not changed over time to adapt with the new times. Why help them , when we know they are going to fail down the road? When will bailing out industries stop. Who is next, Chinese panda express?

The “No” case arguments by Brooks, Megan McArdle and Krauthammer are the best.

The yes Case: These times are not ordinary. The economy is very fragile, more like on thin ice. The economy might not able to width stand the shock of this magnitude and could lead to dire consequences not just in the US but abroad as well. But should we just give the big 3 automakers 25billion? No. We could certainly impose conditions. But conditions have to be imposed both on the Unions and the management.

The yes case is articulated best by Robert J. Samuelson and Sachs.

I am for the Yes case.