New Plan for GM & Stock Off 20% – Is Healthcare Reform the Cure?
I Haz a Headache. GM’s stock price took a big hit today as it lost about 25% of its already middling value. The company, despite well-publicized efforts at resuscitation, is again on a gurney in intensive care with all kinds of tubes stuck in it.
President Obama’s newly announced treatment plan for GM (and Chrysler) was officially announced today, and it suggests, in its forceful wording, that this may well be the last intervention before the radical surgery of Chapter 11 reorganization. Not that radical surgery hasn’t been applied already, to union benefits and bondholders alike. Indeed, today’s announcement disclosed that GM had, last evening, a radical CEO-ectomy, with the removal of CEO Rick Wagoner.
In any event, the President has put together a team of doctors who will operate on GM at the Cabinet level. Politico reported, “The Obama administration calls its task force ‘a cabinet-level group that includes the secretaries of Transportation, Commerce, Labor and Energy. It will also include the chairman of the President’s Council of Economic Advisers, the director of the Office of Management and Budget, the EPA administrator, and the director of the White House Office of Energy and Climate Change. The Task Force will be led by Treasury Secretary [Tim] Geithner and [National Economic Council] Director Larry Summers.’” In addition, and something that may provide succor to the UAW, the President appointed Ed Montgomery, former Deputy Secretary of the Labor Department in the Clinton administration, as Director of Recovery for Auto Communities and Workers. That’s a position that will, hopefully, make the GOP howl.
The Costs of Intensive Care. Today, the President said,”We cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars . . . not as wards of the state . . .” The federal government will give GM “adequate working capital” over the next 60 days to work with the administration towards recovery. “We have made very clear that we expect a very, very substantial reduction in liability for both companies,” one official said. GM must reduce its billions in debt to the UAW (primarily to the healthcare plan the union agreed to take over), and to its bondholders by staggering amounts.
Bondholder debt at about $28 billion likely must be cut back by more than two-thirds. GM offered bondholders 8¢ in cash, 16¢ in new unsecured debt, and new stock in GM. The bonds have traded for around 20¢ on the dollar. Bondholders have argued that even though GM is offering more than the 20¢ some bondholders paid, GM isn’t offering to cash them out. So the company is only reducing the face value of the bonds and giving those investors equity (stock), which they argue, could be wiped out in a Chapter 11 bankruptcy.
At the same time, GM owes the UAW $20 billion to create a union-led health-care trust for retiree medical benefits. The UAW already accepted half of a similar debt from rival Ford Motor. GM could get a similar deal, but GM is asking the UAW to take less than half the $20 billion in cash and the rest in stock, again a risky proposition in light of the bankruptcy possibility.
The problem is that GM may need to get the UAW and bondholders to accept more stock than the cash the original plan asked for. And don’t underestimate that GM needs labor concessions in part to win an agreement from bondholders to exchange existing debt for cash and new GM equity. It’s dicey.
An Inconvenient Answer. The answer to all this is the same answer that’s been floated regularly in this debate: nationalized healthcare. Coverage that reaches everyone, rich or poor, working or unemployed. That is the primary “legacy” cost that is killing GM and others; indeed, it affects every business in America. A single payer insurance program would resolve the inefficiencies inherent in tying health insurance to employment, and would equitably spread the costs throughout society. Perhaps President Obama is hoping that a radical change in our healthcare system will roll out during the next two years, and thus relieve companies like GM and the UAW, by extension, from those massive dollar costs.
And, as always, the bigger question. What does it now cost us in GDP and in moral character as a nation to continue a healthcare system that is so brutally fractured and costly? Those who argue that we’d be replacing our finely tuned healthcare system with “rationing”? Look around; we already ration, and in the worst possible way, by wealth and its corollary, race. We can restore a lot more than our auto industry with healthcare reform.
