President Obama spoke about loans to the auto industry at 11 AM this morning in the Grand Foyer of the White House.

In the first three parts of this series, we (1) covered some background, (2) analyzed the President’s options, and (3) learned about the loans President Bush authorized in December, which laid the groundwork for President Obama’s decision.

An Associated Press headline reads, “GM, Chrysler Get Ultimatum from Obama on Turnaround.” I think this is a misread. It appears to me that Chrysler got an ultimatum, and GM got a do-over.

Here’s my analysis of the different messages to Chrysler and General Motors contained in the President’s remarks and in the fact sheet released by the White House. I’m trying to weed out the political and communications signals the White House might want the press and various constituencies to think they heard, from the definitive and binding statements made today by the President and by his Administration. As an example, while the President’s words and the documents tip their hats to more fuel efficient vehicles, I see no specific new hard fuel efficiency requirements for either Chrysler or GM. This is in contrast to the clear language that Chrysler will get more funds after April 30th only if it has merged with Fiat or someone else.

In 6+ years working for President Bush I wrote and edited hundreds of White House fact sheets, and worked with the speechwriters and fact-checkers on a similar number of Presidential speeches. We meant exactly what we said in those speeches and documents. Here is my attempt to boil down the text of the President’s remarks and the White House fact sheet into their essential, definitive, and binding statements.

Message to Chrysler:

  • You are not viable as a standalone company.
  • We do not think that you can become viable as a standalone company. “
    [W]e have determined … that Chrysler needs a partner to remain viable.”
  • We will subsidize you through April 30th, so you have time to try to merge with Fiat. (How much?)
  • We’ll consider subsidizing the merger with Fiat by up to $6 billion of taxpayer funds, as long as we get paid back first.
  • If that does not work and you can’t find another merger, you’re on your own.
  • We will not subsidize you as a standalone company beyond April 30th.
  • Your “best chance at success may well require utilizing the bankruptcy code in a quick and surgical way.”
  • We will guarantee your warrantees for all new cars you sell.

Then there is a more detailed and quite specific set of terms. “Fiat, Chyrsler and all of Chrysler’s stakeholders must clearly understand that for this deal to succed, significant hurdles must be cleared…”

  1. Chrysler must, at a minimum “extinguish the vast majority of [their] oustanding secured debt and all of its unsecured debt and equity…”
  2. Chrysler, Fiat, and the UAW need to reach an agreement that entails greater concessions than those outlined in the existing loan agreements.”
  3. “Chrysler and Fiat need to demonstrate with a greater degree of detail an operating plan that is truly viable, that can generate meaningful positive cash flow in a normal business environment and that can demonstrate credibly that taxpayer loas will be repaid on a timely basis.”
  4. You’ll get no more than $6 billion, and that only after you’ve restructured.
  5. You have to make sure you can finance cars purchased by your dealers and customers.
  6. You need to have a credible plan. “Given the magnitude of the concessions needed, the most effective way for Chrysler to emerge from this restructuring with a fresh start may be by using an expedited bankruptcy process as a tool to extinguish existing liabilities.”

Message to General Motors:

  • The plan you submitted does not propose a credible path to viability.
  • There is a potential plan that will make you viable as a standalone company.
  • We will “provide [you] with working capital for 60 days to develop a more restructuring plan and a credible strategy to implement such a plan.” (How much?)
  • We will guarantee your warrantees for all new cars you sell.
  • Your CEO, Rick Wagoner, has to resign. A majority of the board has to go as well.
  • Your “best chance at success may well require utilizing the bankruptcy code in a quick and surgical way.”
  • We (the U.S. government) will be involved in your restructuring. “The Administration team, consisting of Treasury officials as well as private sector auto industry and restructuring experts retained by the Administration, will work closely with the company.”

The clearest contrast I can provide is in these two sentences from the President’s remarks:

But if [Chrysler] and [its] stakeholders are unable to reach such an agreement, and in the absence of any other viable partnership, we will not be able to justify investing additional tax dollars to keep Chrysler in business [after April 30].

What we are interested in is giving GM an opportunity to finally make those much-needed changes that will let them emerge from this crisis a stronger and more competitive company.

Let’s put this in the context of the options I laid out in part two of this series. Remember that option 1 is to continue loaning GM or Chrysler taxpayer funds even if they are not yet viable, while option 2 is to provide taxpayer funds only after a firm has entered a Chapter 11 restructuring (aka “debtor-in-possession financing,” or “DIP financing”).

  • On Chrysler, the President chose option 1, while making a hard commitment to a variant of option 2 after April 30th. He has locked himself into this strategy, even if it means that Chrysler fails and liquidates.
  • On General Motors, the President has chosen option 1, and explicitly threatened option 2 after 60 days, but has left himself room to wiggle out of option 2 if he thinks that it might lead to GM’s liquidation.

If you disagree with my interpretation, I’d like to hear a different view. Please provide specific textual references to the President’s remarks or the White House documents. I would like to rely on primary sources rather than the press filter.

I hope to post some more on the additional exposure to taxpayers, as well as provide more of my own analysis. Check back later tonight if you’re interested.

If you’re new to this series, here are the three prior posts:

  1. Auto loans: a deadline looms
  2. Auto loans, part 2: the President’s options
  3. Auto loans, part 3: the Bush approach