Create a free account to continue

Analysis: Auto Deals Extend Obama’s Reach, Risk

Government's intervention with Chrysler and General Motors has been far more intrusive than the way it has confronted troubled financial companies.

WASHINGTON (AP) -- In forcing a swift bankruptcy on Chrysler, President Barack Obama expanded the risk and reach of the presidency in the hope that the hidebound auto industry will find a way to remake itself.

The government's intervention with Chrysler LLC and General Motors Corp. has been far more intrusive than the way it has confronted troubled financial companies. The administration's influence now ranges from guaranteeing your brake pads to pushing for new products on the assembly line.

As Obama himself put it, "If the Japanese can design an affordable, well-designed hybrid, then, doggone it, the American people should be able to do the same."

Despite an additional $8 billion taxpayer infusion into Chrysler, the president and his advisers say the administration has no desire to be in the auto business. And they say they don't intend to micromanage the company.

But as part of Thursday's arrangement, the government will be an investor in the new Chrysler company, and the Treasury Department will select four of its new directors, all of them presumably sympathetic with the White House's vision of what the car of the future should be.

In cutting the deal, Obama buys himself good will with an important labor force, especially in a state, Michigan, suffering hugely from unemployment. At the same time he gets to push a key policy goal, fuel-efficiency, not just as president but as a powerful company investor.

But he also is putting billions of dollars of taxpayer money at risk at a time of rising anxiety about government bailouts and soaring deficits.

Even before he got to this point, Obama had exerted unprecedented power. He rejected Chrysler's and General Motors' restructuring plans last month and forced GM's CEO, Rick Wagoner, to resign. At Chrysler, too, chief executive Robert Nardelli said Thursday he is going to leave when the bankruptcy is complete.

General Motors still has another 30 days to restructure itself, and its stakeholders may well take a lesson from the administration's dealings with Chrysler.

When Obama was not leveraging industry behavior with taxpayers' money, he was using the pulpit of the presidency to make his wishes known in no uncertain terms. In announcing the deal Thursday, he left no doubt about his anger with some Chrysler creditors who refused to accept a reduced payout for their investment.

"They were hoping that everybody else would make sacrifices, and they would have to make none," he said. "I don't stand with them."

Administration officials said they tried to sweeten the offer Wednesday night to attract more creditors, to no avail.

That could be an effort to nudge a bankruptcy judge to be tough with recalcitrant stakeholders. And by showing a willingness to stand up to some Chrysler creditors, Obama was also sending a signal to GM bondholders not to hold out for too great a return.

His tone also carried the same populist strains that he used when he railed against Wall Street bonuses.

"He's invested in terms of the taxpayers' investment, and he's invested in it politically," said Sen. Carl Levin, a Michigan Democrat who had initially objected to bankruptcy as a way to restructure the company.

While the political risks are potentially great, taking Chrysler through bankruptcy buys some short-term political running room.

For months, Republicans and some Democrats have said a Chapter 11-protected restructuring was the proper fate for the automakers. By Thursday, some past critics of bankruptcy such as Levin were hailing the deal as a new birth for Chrysler.

What's more, the public appears to tilt in favor of government interventions, at least so far. A FOX News/Opinion Dynamics Poll in March found 43 percent of respondents saying the government under Obama was taking an appropriate role in running U.S. companies. Thirteen percent said the administration was not taking a big enough role.

Despite the stigma often attached to bankruptcy, Obama took pains to portray it as a positive development. "This is not a sign of weakness," he insisted, "but rather one more step on a clearly charted path to Chrysler's revival."

To be sure, the administration's day-and-night involvement with the auto industry does not match its attempts to rescue financial institutions. That's partly because the automakers have made a desperate pitch for a government bailout, while some of the biggest financial institutions have been less enthusiastic in their desire for help.

Many major banks now say they want to return their share of a $700 billion financial rescue fund, in part to avoid restrictions that the government has imposed or threatened to impose.

At the same time, the government has always been able to influence banking behavior through regulation. And that's where Obama says he intends to address the industry's excesses. Still, banks can fight back in ways that automakers can't. On Thursday the banking industry succeeded in defeating a Senate proposal that would have let homeowners seek foreclosure relief through bankruptcy court.

So far, the two Detroit car companies are only asking how high Obama wants them to jump.

EDITOR'S NOTE -- Jim Kuhnhenn covers the economy and politics for The Associated Press.

More in Supply Chain