Economic Update – Obama Turns Up Heat on Detroit
- Mar 31, 2009
GM and Chrysler’s efforts so far to turn themselves around have proven to be lemons. That was the contention of the Obama administration as it gave failing grades to the automakers and vowed to perform a sweeping overhaul of both firms if they failed to get their financial ducks in a row soon. Under the current plan, the federal government will foot the bill for GM and Chrysler to operate over the next several weeks–with plenty of strings attached. The companies will have to undergo major restructuring, said the administration, lest the government make good on its threats of a “structured bankruptcy,” which certainly sounds painful. GM wasted little time in trying to make good with the administration, jettisoning CEO Rick Wagoner–at Team Obama’s request–on Monday. The companies, which have so far received $17.4 billion in government (read, taxpayer) aid, have just a matter of weeks to prove they can right their own ships before the government takes out the big guns. GM has been given a 60-day timeline, and Chrysler 30. No word on whether or not Chrysler is willing to ax an exec of its own to gain a few more weeks’ grace. Meanwhile, the oil market took note of the scent of fear wafting out of Detroit. Prices fell nearly $4 per barrel to settle at $48.11, after pushing up last week as the stock market rallied. That should come as a silver lining to consumers who had been faced with both a still-crumbling economy, and also rising prices at the pump. If nothing else, Detroit’s struggles will alleviate some of the flashbacks to the $4-per-gallon days of last summer that many motorists were probably suffering as of late. The tide of foreclosures in the single family housing market remains anything but stemmed, even as lenders have stepped up efforts to help borrowers stay in their homes. February saw nearly 250,000 homeowners get their mortgages modified or enroll in a repayment plan, according to Hope Now, a coalition of lenders, investors and community advocates. But these efforts may prove to be little more than a finger in the dyke; the number of foreclosures in February jumped to 243,000, from 217,000 in January. During the month, banks repossessed some 87,000 homes, a 28 percent uptick from January. The Obama administration’s efforts to prevent foreclosures are sure to help matters, but any improvement could take a few months; under the plan, mortgage modifications will take 90 days. By that time, we could be running out of fingers. The stock market fell back to earth today after seeing a nice run over the past couple of weeks. The Dow Jones index dropped 254 points–its biggest single-day slump since March 5–while the S&P lost 28 points and the Nasdaq fell 43 ticks. Much of the losses can probably be attributed to a selloff after the 20 percent upswing in the major indexes over the past three weeks. But worries about the auto industry and continued malaise in the wider economy also certainly played a role.