Skip to comments.Did GM Bailout Cost Lives?
Posted on 12/15/2014 1:08:59 PM PST by jazusamo
The death toll for General Motors' faulty ignition switch victims continues to rise with the last reported number being 42. There has been speculation that the death count is significantly higher, as safety advocate Clarence Ditlow has written to GM to request an expansion of efforts to uncover victims of accidents resulting from defective GM vehicles.
GM has known about the ignition switch defect for years and failed to recall the deadly vehicles for almost five years after the Obama Administration took over the company in June of 2009. President Obama's Auto Task Force guided the company through a manipulated bankruptcy process that favored political allies like the UAW over other creditors as new management and board members were appointed by the Administration. We now must question the perceived "success" of the GM bailout and ask if a conventional bankruptcy process could have saved some of the lives that were lost.
While a new CEO was put in place by the President's team, most of the GM executives remained on board. The Auto Task Force that guided the bankruptcy process consisted of experts in financial markets (headed by allegedly corrupt hedge fund guy, Steven Rattner), union friends (Ron Bloom replaced Rattner and once stated "we did this all for the unions") and bankruptcy law experts. Notably absent were auto industry experts.
Apologists for the auto bailouts have long claimed that there were no alternate options to a government takeover of GM and Chrysler. This defense rests upon an assumption that no other entities could provide the capital necessary to guide the auto makers through a conventional bankruptcy process. Before questioning if lives were lost as a result of Team Obama's GM takeover, we must first address the claims that there just wasn't any other option.
One of the most informative analyses of the auto industry bailout process was written around the time of the GM bankruptcy by Barry Adler, an NYU law professor and noted bankruptcy expert. Mr. Adler has testified before Congress regarding the auto bailouts and written numerous pieces on the subject. Unlike some others that give opinions on the auto bailouts, I sense no political agenda for Mr. Adler. His piece was entitled "A Reassessment of Bankruptcy Reorganization after Chrysler and General Motors."
Here are some excerpts from Mr. Adler's analyses:
The recent bankruptcy cases of Chrysler and General Motors were successful in that they quickly removed assets from the burden of unmanageable debt amidst a global recession, but the price of this achievement was unnecessarily high because the cases established or buttressed precedent for the disregard of creditor rights...
...The sale in Chrysler was orchestrated by the U.S. government through the Treasury and a specially created automotive task force. The purchaser in this case was funded primarily by the U.S. government, which had previously advanced $4 billion in funds from the Troubled Asset Relief Program ("TARP") and, along with the Canadian government, agreed to loan the new enterprise billions more. The governments had political reasons to assure continuation of auto production and toward that end may have been willing to pay more for the assets than they were worth. For purposes of bankruptcy law, then, the question is not whether the government paid the UAW too much, or whether funds were diverted, but whether the process deprived the secured creditors of a return to which the law entitled them.
...Judge Gonzalez permitted only days for a competitive bid to challenge the proposed sale and restricted bids to those that were willing to have the bidder assume specified liabilities, including Chrysler's obligation to the VEBA . There was an exception to this restriction for specially approved bids, but noncompliant bids were not entitled to information about the company that qualified bidders could access and, by the court's order, the UAW had to be consulted before a noncompliant bid would be approved...
Chrysler was a blueprint for the General Motors bankruptcy, which, like that of Chrysler, included a sale of the debtor's assets to an entity that assumed unsecured obligations owed its workers or former workers.14 In General Motors' case, the purchaser, "New GM," owned largely by the United States Treasury, agreed to satisfy General Motors' approximately $20 billion pre-bankruptcy obligation to the VEBA...and the sale procedures required that, absent special exemption, any bidder who wished to compete with government-financed entity was to assume liabilities to the UAW as a condition of the purchase. Therefore, once again, there was no true market test for the sale.
...Still, just as in Chrysler, the approval of a restricted bid process establishes a troubling precedent, one that went unnoticed, or at least unnoted, by the court...Judge Gerber ignored the constraints within the sales procedure, which, like those in Chrysler, may have discouraged a potentially higher bid by a prospective purchaser who had not time to put a bid together or who was unwilling to make the same concessions to the UAW that the government-sponsored purchaser was willing to endure.
...The Chrysler and General Motors cases are objectionable because they include a sale of virtually all of a debtor's assets under section 363 of the Bankruptcy Code without a market test for the value of those assets. In Chrysler and in General Motors, had the price paid for the assets been properly determined, dissenting creditors would have had no basis for complaint so long as they received a ratable share of the sale proceeds consistent with their priority. In neither case, however, was the price properly determined. It is particularly problematic that in each case the process favored some creditors over others through the assumption of some claims and the consequent relegation of others to receive perhaps inadequate sales proceeds.
So, what Mr. Adler rightfully points out is that our government, specifically the Executive Branch, did not allow for a fair bidding process for other interested parties to take over GM or Chrysler. Any interested bidder would have to protect UAW assets to comply with the Obama-orchestrated bankruptcy terms. Essentially, any bidder for GM or Chrysler would have to compete with the bottomless pockets of the US Treasury if they wanted in.
It is beyond believe that no other party would have an interest in purchasing the valuable brands of GM. It is very believable that the Obama Administration would not allow this to happen; particularly if it meant that the UAW would not be protected.
So, assuming a conventional bankruptcy was allowed to proceed, any incoming management would carefully examine the business. The ongoing lawsuits regarding deaths from defective GM vehicles would have been discovered. Any management team with higher ethics than the outgoing GM team (a pretty low bar) would have recalled defective vehicles and potentially saved lives.
I do not think that it is a stretch to say that the auto industry bailouts can now be criticized for contributing to the loss of lives that resulted from GM's failure to recall deadly vehicles. Further investigation is needed to determine who allowed those vehicles to remain on the roads. Criminal charges should follow. Above all, a case should be made that the GM bailout was not the great success that the public has been led to believe it was. At the worst, it contributed to the loss of lives of those who were victims of GM's failure to recall deadly defective vehicles.
Mark Modica is an NLPC Associate Fellow.
Sad. I would argue the malfeasance by the Obama admin went beyond just short-circuiting and rigging the bankruptcy process. Once GM was owned by the gov’t, the Obama admin had incentive to help/encourage GM to keep the ignition switch issue quiet until the time was right. They were probably pressuring the regulators to go after Toyota for the possibly specious acceleration problem while simultaneously pressuring the regulators to ignore GM problems. Frightening - how many more people died because of this collusion?
I totally agree.
Here’s an article regarding that issue I posted a week ago.
wow - 84 complaints against Toyota vs over 1,100 complaints on the Chevy Cobalt - and the feds go after Toyota! My suspicions are confirmed - thanks!
Ford is the only domestic make of the remaining two I’ll consider buying again.
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