The Obama administration keeps saying that it will allow General Motors (GM) and Chrysler to go into bankruptcy if they do not come up with acceptable restructuring plans. The first deadline, March 31, came and went. GM CEO Rick Wagoner lost his job for not completing his company's plans, but the government gave the two firms an extension and more money.
Now, GM and Chrysler are each about to get another slug of money, and, once again, they have not completed their programs for cost cutting and debt restructuring. The administration is sending a signal to the unions and creditors that they can string out the negotiations.Perhaps the Treasury, which is overseeing the plans to "fix" Detroit, knows that a bankruptcy judge could make the Chapter 11 process long and painful. The "long" part means that the restructuring process could take months, which would require even more government money to keep the firms afloat through the procedure.
According to Reuters, "The Obama administration will make about $500 million available to Chrysler LLC through the end of this month as it seeks to reach an alliance with Fiat, and up to $5 billion through May to help General Motors Corp restructure outside of bankruptcy."
By letting the process be dragged out, the government is doing nothing to bring bond holders and the UAW to their knees, which is what will be required to cut enough costs to make the two car companies viable. It is a bit like fiddling while Rome burns.
Douglas A. McIntyre is an editor at 24/7 Wall St.