Preserving America's Clean Auto Future

New York City - Yesterday, two things happened that in my mind should be connected but are not. The White House sponsored a car show---of energy efficient American vehicles right on the White House grounds. Later in the day GM announced it would not make almost any cars this summer. The rapid slide of GM--once the greatest company in America and still a prime driver of economic growth--into oblivion poses many problems for the American economy. But what would be doubly tragic for our country's future, however, is if the auto industry is allowed to slip away on the very eve of what may be a whole new growth chapter in auto history—as suggested by yesterday’s White House event--the development of clean cars. As I have written in a previous post, China which recently passed the US to become the world's largest car market is simultaneously embarking on a coordinated strategy to become the world's leader in the production of electric vehicles. China has every change of succeeding, first because of low costs, second because it now has about 100 companies making cars and, not least, because the government has targeted success in electric vehicles as a top priority at the precise moment that the US government seems willing to allow much of the US car industry to slide into bankrtupcy. The argument in favor of a pre-packaged bankrtupcy is, of course, that Chapter 11 allows companies to shed debt and labor contracts and re-emerge lean and mean. Oh Thank Heaven for Chapter 11 was the saying in Texas during the oil bust. Any number of airlines have been through bankruptcy and re-emerged. And, in a new twist, the government has proposed a good company bad company approach modeled after banking restructuring proposals--that would shift the obligations of GM to a bad side freeing the good side to emerge as profitable contender. The problem is that bankruptcy--even the Chapter 11 variety--carries immense risks, both legal and financial, adding up to huge uncertainty. On the legal side, bankrupty imparts significant discretion to a judge to do what he or she deems fairest for all parties, making bankruptcy far from a predictable event. Judges, in turn, must be sensitive to the risk of lawsuits from creditors, unions and affected parties. Veteran bankruptcy attorneys, commenting on the GM situation have observed that these factors are likely to make bankruptcy far more complex in reality than the simple process described in the press. Delco, the auto parts maker is undergoing a messy Chapter 11 proceeding. On the financial side, if conditions deteriorate, then a Chapter 11 bankruptcy can turn into a Chapter 7 bankruptcy, the kind where the companies close their doors and liquidate. This is what happened to Circuit City recently and has happened to many other firms. GM's banktuptcy would be vastly more complicated than almost any bankruptcy in history-occurring in multiple countries--with multiple regulators--and the likely delay in re-emerging out of Chapter 11 could easily cause the company to collapse in the meantime. Bankruptcy status would almost certainly impact sales, lower prices and start the clock ticking on the erosion of assets. So what can be done? Two things come to mind. First, the parties that ultimately decide whether a company must file bankruptcy are its creditors (which can include unions when there are pension and wage obligations). If the creditors are willing to make a deal with the company, bankruptcy can be averted. The key--particularly with a company as large as GM is to organize the tremendous numbers of bond holders into a group. A bondholders group exists for GM but so far the Auto Task Force has not actively explored this option. (Negotiations are underway with Chrysler but the parties are far apart.) Another approach is for the company to sell off or transfer as many assets as possible before bankruptcy. It so happens that GM has many great assets that would lose all of their value after bankrtupcy but can still be salvaged prior to bankrtupcy occurring preserving jobs, value and in particular, America's clean economic future. In the United States, a number of influential Congressmen have suggested that GM's assets can be repurposed to building a clean transportation infrastructure here in the United States--but only if the Auto Task Force works rapidly to make this happen. Why not turn a part of GM, for example, into EM or Electric Motors. Electric vehicle manufacturers or companies helping to develop America's next generation of clean cars could repurpose existing GM assets for the manufacture of electric cars right here in the United States. Repurposing facilities that GM intends to close anyway into electric vehicle manufacturing, injecting new capital and preserving American jobs would be a win win for all concerned. Indeed, the Financial Times reports that GM is in discussions to transfer its Opel/Vauxhaull and Saab units in Europe to investors who would put in new capital to revive them. The German and Swedish governments would provide financing and facilitate the deal. Ultimately, if the US is to make good on President Obama's call to develop a clean energy economy--one that creates good high paying jobs and can power a new wave of prosperity, we must preserve and indeed expand our industrial base--not allow it to disappear. The issue is critical in those parts of the country where auto-related manufacturing takes place--states like Michigan and Ohio but also Tennessee and Kentucky Make no mistake. If GM and Chrysler’s plants shut down, do not expect Ford, Toyota, Honda or even innovative startups such as Tesla to pick up the slack. The evisceration of the US supply chain would incent not only Toyota and Honda but even Ford to source more of their parts, components and even cars overseas than they already do. The auto task force and Congress should work now--to put off bankruptcy and restructure GM and Chrysler--in a way that brightens our clean energy future rather than dims it.