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early and often

Obama Offers GM and Chrysler a Tough New Deal

Yesterday President Obama revealed his new proposals for the futures of GM and Chrysler, whose viability plans were deemed, well, not viable. It may seem like we're bailing them out for maybe the hundredth time, but this time, to prove that the government means business, Obama first canned GM's CEO, Rick Wagoner. Now that everyone was paying attention, Obama outlined his new hard-line plan for the car companies. GM has 60 days to drastically restructure or face bankruptcy, while Chrysler has to merge with Fiat or it's on its own for good. In the meantime, Obama has promised that the government will guarantee the companies' warranties, making him not only the CEO-in-chief, but the automakers' chief pitchman. So is this new approach the last, best chance to salvage the American auto industry, or just an overextension of government into the free market?

• David Brooks asserts that "there’s no reason to think the umpteenth restructuring will produce compelling results." Most likely, we'll see "some semiserious restructuring plan, with or without court involvement, to be followed by long-term government intervention and backdoor subsidies forever." Obama's "intentions were good," but "[i]t would have been better to keep a distance from G.M. and prepare the region for a structured bankruptcy process." [NYT]

• The New York Times editorial board disagrees, calling the plan "an acceptable compromise ... between two unappealing options: letting General Motors and Chrysler go bankrupt right away or giving them tens of billions of dollars more while hoping for the best." Now the government "must stick to its stated objectives and deadlines." [NYT]

• William J. Holstein contends that ousted GM CEO Rick Wagoner was making progress and that his removal, while "politically expedient for Mr. Obama," didn't "strike the right balance in respecting the role of the private sector." [NYT]

The Wall Street Journal editorial board commends Obama "for at least promising some tougher medicine." Though Wagoner was a "sacrificial lamb," his removal as CEO "was the easy part." Harder will be "trying to get the unions to make concessions on wages and legacy costs, and bondholders to agree to reduce the debt burden." But the "larger problem" is that "Mr. Obama wants the companies to make the kind of cars the political class favors, whether or not consumers want to buy them." [WSJ]

• The Washington Post editorial board thinks Obama has "delivered a believable, sharp and necessary ultimatum to U.S. automakers." Hopefully, "it will cause General Motors and Chrysler to undertake the financial and structural reforms they have been avoiding." [WP]

• Eugene Robinson writes that Obama is "telling Detroit to shape up or die while at the same time politely asking Wall Street, whose recklessness and greed caused this economic crisis, if it would be so kind as to accept another heaping helping of taxpayer funds." The juxtaposition between Obama's treatment is "galling." Why didn't "one of the bankers who got us into this predicament" get the same "public flogging" as Wagoner? [WP]

• Richard Cohen believes bankruptcy "can save the industry." He wishes GM and Chrysler "luck — but no more of my money." [WP]

• Jonathan Cohn finds this "a much more promising path than the options on the table just a few months ago." The Obama administration "may not have all the answers, but they have clearly spent a lot of time pondering the questions." Still, there are plenty of question marks, like the potential success of a Chrysler-Fiat merger and the demand for fuel-efficient cars. [Plank/New Republic]

• Jim Manzi cheers that the Obama administration has "at least recognized reality and admitted that GM and Chrysler are, to use the technical business jargon, totally hosed." But if they don't stick to the deadlines they've set, "it's hard to imagine management, unions or bondholders taking any future threats to let the companies go under very seriously." [Atlantic]

• Rich Lowry doesn't like the government's involvement in the auto industry and believes Chapter 11 bankruptcy is a "proven method of restructuring salvageable but insolvent companies that avoids all of these pitfalls." Obama should prove "that he has no interest in running the auto companies ... by not running the auto companies." [National Review]

• Larry Kudlow wonders "if we’ve officially entered a new era of government-controlled business." We're now "taking a new left-turn toward the kind of central planning that has held down economic growth in Europe and Japan for so very long." The right move would have been for the carmakers to "have been in bankruptcy months ago." [National Review]

• Mike Madden says Obama is making clear that the "free ride for companies that take billions of dollars of government bailouts is coming to an end." But it's "hard not to wonder if some of the new tough talk aimed at Detroit isn't actually aimed at voters, meant to make them think the administration realizes how upset people are with all the bailouts." [Salon]

• Henry Blodget contends that Wagoner "did a terrible job" and deserved to be sacked. [Clusterstock/Business Insider]

• Andrew Ross Sorkin says bondholders, who are motivated not by jobs or patriotism but by "dollars and cents," are complaining, "[b]ut if there is any chance of keeping [GM] out of Chapter 11, odds are bondholders — and not just workers — will have to come to the table with an open mind." [Dealbook/NYT]

• Daniel Gross agrees that "[h]olders of GM's debt, like other entities to whom GM has made financial commitments—dealers, the auto unions — are going to have to cut a deal, sooner rather than later, and accept less than they think they're entitled to." [Newsweek]

• Joann Muller believes that Obama's "hard-line approach ... won't solve a fundamental problem facing Detroit. People just don't feel like buying new cars these days. [...] A better strategy ... would be a cash-incentive program to encourage consumers to replace their older, gas-guzzling vehicles with newer, fuel efficient cars," which would "boost car sales" and "help get polluting cars off the road and speed the introduction of cleaner cars, something the Obama administration wants." [Forbes]

• Matt Yglesias notes that "unlike a lot of other things that have raised the cry of 'socialism!' this really sort of is socialism." But "this looks like an economically responsible way to avoid a cataclysmic implosion of these firms at an inopportune moment." Even still, if the plan works, it probably won't "achieve what people would ideally like to see," as the auto industry will be fundamentally different. [Think Progress]