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Michigan Facing "Economic Katrina" If GM Files for Bankruptcy, Rep. McCotter Says

Posted Apr 08, 2009 01:53pm EDT by Aaron Task in Newsmakers, Autos
Related: GM, AIG, TM, HMC, AXL, LEA, GT

Already saddled with the country's highest unemployment rate, Michigan faces "an economic Katrina" if GM or Chrysler file for bankruptcy, says Representative Thaddeus McCotter (R-MI).

Last month, President Obama rejected the automakers' proposals that included combined job cuts of 50,000 workers. McCotter now fears job cuts beyond that level will result, as well as the potential for a "cascading effect" in auto suppliers (which have been given a $5 billion TARP lifeline) and other related industries if either GM or Chrysler files for bankruptcy.

Staring March 30, GM has 60 days and Chrysler 30 days to come up with new viability plans.  McCotter says GM is striving to come up with a new restructuring plan, but also must prepare for the possibility of a bankruptcy filing. Meanwhile, the proposed Chrysler-Fiat deal is "doable," he says, but the devil is in the details.

Beyond the human toll, McCotter's main concern is twofold:

  • The Obama administration had laid out "policy goals" but no clear-cut guidelines for what kind of restructuring they will accept.
  • GM doesn't have a lot of time to negotiate with stakeholders, including the UAW, retirees and its bondholders.

On a related note, McCotter has petitioned the White House, Fed and Treasury to determine whether any GM bondholders have credit default swaps with AIG. Considering AIG's counterparties have been made whole to date, such CDS holders might favor a forced GM bankruptcy, as we discuss in more detail in part 2 of our interview with the Congressman.

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