Beggars on the Hill

The Detroit Three came back to Congress yesterday with their alleged business plans.

General Motors and Chrysler did little more than hold out their tin cups demanding large sums of taxpayer money before Christmas, and more in January, to avert a collapse. If this is the case, why did senior management not disclose it when they testified before Congress last month? If they did not know, what does that say about their competence?

This just looks like an attempt to panic the Congress into throwing money. As a first step, Chrysler and General Motors CEOs Robert Nardelli and Richard Wagoner should resign - without any severance pay.

As a second step, Cerberus Capital, a very large private equity fund that owns 80% of Chrysler, should immediately institute a capital call for at least $4 billion while simultaneously converting its existing loans to Chrysler into equity. Why should the long suffering taxpayer put up cash if the managers of Cerberus are unwilling to ask its investors to contribute more capital?

There is probably no solution for the problems of General Motors other than Chapter 11. It has few exciting products among an excess of brands. The scare stories about the impact of a Chapter 11 filing are undoubtedly overblown.

Only Ford seems to have a plan and the products, in the form of high quality small and medium sized automobiles designed and made in Europe, to succeed. The company is asking for a $9 billion backup line of credit that - just possibly - might not be required. Provided that such a line is accompanied by a substantial issue of warrants - and therefore the possibility of a decent return to taxpayers - the risk of backing Ford appears to be reasonable.

There has been enough promiscuous scattering of taxpayer cash. Let us hope that Congress - even though the Democratic Party can often be described as a wholly owned subsidiary of the AFL-CIO - will look at these requests with the objective of ensuring value for our money.

But I am not holding my breath.