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A Bankrupt Bankruptcy



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Detroit, Mich. — Seven months ago, the United Auto Workers and its media and political allies howled at the prospect of a GM bankruptcy. What a difference a Democratic president makes.

After securing a bailout from the Bush administration to keep the company afloat, the UAW has used the last several months — and its considerable clout in the Democratic party — to shape bankruptcy to its liking.

Bankruptcy experts, who overwhelmingly favored GM entering Chapter 11 last fall with government acting as a so-called debtor-in-possession (DIP) financier (to guarantee consumer warranties and supplier contracts), have watched with horror as the Obama administration has exercised ruthless, mob-like power to rip up bondholder contracts and construct a highly irregular bankruptcy process that favors Big Labor over investors.

But perhaps most ominous for GM’s future, the government itself now owns 60 percent of the company, setting up an inevitable conflict of interest between Washington’s political interests and a return of the automaker to profitability.

That conflict is already apparent as the Obama administration has:

* pushed new mpg laws (which will punish GM for what it does best: make light trucks).

* discouraged GM from importing small cars it already builds overseas to meet those mpg limits overseas so that such cars might be built by the UAW.

* encouraged GM to build plug-in electric cars like the Chevy Volt to satisfy Greens even as the White House’s own task force says the Volt will not make money anytime soon (if ever).

With the government using the bankruptcy process for political rather than competitive ends, interested parties like management and unions have less reason to fundamentally reform their past errors.

And without fundamental reform, GM is likely to be a ward of the state for a very long time.



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