Some Auto Thoughts and Possible Dollar Implications

The seemingly inevitable bankruptcy of General Motors talk of the markets but it seems that the speed at which Chrylser is moving through its bankruptcy proceedings is remarkable. It may emerge from bankruptcy within the next couple of weeks, according to some press reports. This in turn spurs hope that GM, while significantly larger, may also emerge from a restructuring bankruptcy (rather than a liquidation bankruptcy) relatively quickly. The dollar impact is far from clear. Surely the gains it is posting on the session have little to do with the developments in the auto sector. It seems that what many Americans and critics lost during the crisis is an appreciation for the flexibility of the US--and this is not simply limited to the labor market. The economic contraction in the US is thus far significantly less deep than in most of continental Europe and Japan. And its fiscal measures, even allowing for different social safety net commitments, is much greater. In recent years the US specialized in finance, housing and autos. The ability of the US to redeploy resources, as socially disruptive as it may be, and develop new specializations appears unmatched elsewhere.

One caveat to this assessment is that the diffent institutions do not always work at the same speed or in the same direction. And this could be underscored today if as expected a court rules on the case brought by some senior debt holders of Chrylser objecting to the plan that gives the union a privileged position of it. If the court rules in favor the senior debt holders, as precedent would seem to suggest, it calls into question the speed at which Chrylser will emerge from bankruptcy. If on the other hand, the court rules in favor of the plan, some observers fears a slippery slope, and lenders will demand a premium for this legal uncertainty/hazard. The latter outcome would seem to potentially be more dollar negative than the former.