It was announced late tonight that the United States government is rejecting the restructuring plan submitted by GM and Chrysler. I will admit the news of this is quite shocking to me as I never expected the government to actually require GM or Chrysler actually come up with a credible and viable plan.
If indeed this is true, and the government rejects these plans, this could actually mean the death of either one or both of these American icons. The following quote came from an unnamed Senior White House official, "We have unfortunately concluded that neither plan submitted by either company represents viability and therefore does not warrant the substantial additional investments that they requested"
While I am certain something could probably still be worked out, I am a little surprised with the administration taking a hard tone here. I was honestly expecting the administration to bend over backwards and say any proposal, no matter how lame, was acceptable. No way I thought they might actually asks them to answer the tough questions or that they might actually consider a scenario that would let GM declare bankruptcy.
If you read the article, things look pretty serious. Chrysler is being given thirty days to work out a deal with Fiat to buy it out else the government will walk away. GM is getting slightly more friendly terms and is being given sixty days to restructure. This has already resulted in GM CEO Rick Wagoner stepping down.
While this one act will not restore my faith that our government can make the hard choices when necessary, it will at least make me think we have taken a step in the right direction. We as a nation can not continue to just throw tax payer money at every problem. We have to allow companies to fail because stronger better companies will take their place. Just look at last week's announcement by Tesla Motors. They are going to try and bring to production an almost affordable all electric vehicle. Where the heck is GM, Ford, or Chrysler with similar plans? Let us let those companies fail and allow new companies like Tesla enter into the competition. They will be instantly more competitive than any of the Big Three Automakers.
I predict that markets are going to end up opening down on this news, so get out quickly if you can. If the market falls below 800 on the S&P, the rally that we have experienced over the last two weeks will be dead and you best be looking for cover.