Rescuing General Motors

Our view: President Obama is right to extend the deadline for GM bailout plan

March 30, 2009

President Barack Obama says he is committed to a reorganized and downsized American auto industry, but whether that goal is doable remains to be seen. The president's auto task force, which demanded and received the resignation Sunday of Rick Wagoner, General Motors chairman and CEO, is expected to recommend more short-term aid for GM and Chrysler on Monday with a 60-day deadline on getting needed concessions from union workers and creditors.

Continuing to pursue a plan to save GM short of bankruptcy is the right course. A bankruptcy and possible liquidation of GM could lead to the loss of hundreds of thousands of jobs at the company, including high-tech workers at its innovative White Marsh plant, and its suppliers, bringing dangerous shocks to a fragile economy. GM has asked for $13.4 billion to pay the bills and stave off bankruptcy in the coming months, but little of that money is likely to be forthcoming until an acceptable plan is completed. That is as it should be.

Three things need to happen for General Motors to escape from the shadow that hangs over it. First, the holders of $27 billion in unsecured GM bonds must agree to swap a significant share of that burden for securities that would prove worthless if the company doesn't survive. Second, the United Auto Workers must agree to give the company more latitude to make layoffs and to agree to concessions on the financing of a new fund intended to finance retirees' health care. Finally, and most important, the company's plan must include sufficiently conservative estimates about anticipated revenues and expenses to convince government monitors that it will be able to keep its financial promises.

Representatives of the bondholders have complained that the company has been too optimistic in its financial forecasts. While the economy is showing some early signs of revival, sales of new cars remain seriously depressed.

All that said, Mr. Obama is right to do all he can to keep General Motors operating. The negative consequences of a GM failure could be sweeping, with some foreign manufacturers forced to suspend production in this country with the shutdown of suppliers they share with GM. Now it's up to the company, the UAW and its lenders to show leadership.

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