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Bailout Battle for the Auto Industry

Late Tuesday night, the White House and the Congressional Leadership reached a general agreement on a $15-billion bailout bill for the auto industry. There are still some points that reportedly need to be worked out, and some Senate Republicans remain reluctant to support the package, which could threaten its passage by that body.

But, from what we've seen of the bill so far, here's a quick overview:


*       Calls for a $15 billion package of short-term loans for U.S. automakers taken from the Dept. of Energy “retooling” loan program already signed into law.   (Few recall that Congress already passed a $25 billion loan program for the automakers in September.)

*       Includes a provision that would ALLOW the government to demand early repayment of the loans if the firms were not making adequate progress toward reinventing themselves. This is an option, not mandatory.

*       Allows the President to choose whether to appoint a single administrator — referred to as a “car czar” — or a board of Cabinet officials to oversee the loan program. 

*       Speaker Pelosi has conceded to WH demands that any bailout come from an Energy Dept. loan program already passed for the auto industry, not TARP.  However, she has stated that the bill must specifically include provisions to replenish the retooling program -- and do so within weeks.   Furthermore, she's been quite vocal about her expectation that Congress will have to send additional funds to Detroit in the new year.  Speaker Pelosi hasn't hidden the fact that she considers this just a first step in Detroit's bailout.

*       Speaker Pelosi wants the package to include a provision prohibiting the Big Three from opposing state fuel emissions rules.  Basically, they'd have to drop their lawsuits in CA and elsewhere against state emissions laws that require the automakers to meet standards that are certainly not cost effective and often not even technologically feasible.                                                                                      


Senate Republicans are right to question the plan's ability to put the Big Three automakers on a viable, sustainable path that protects the taxpayer’s investment. The underlying problem in all this is that the law already provides for judicial oversight of such matters in the bankruptcy courts.  What is being proposed here is that the government make special concessions to the auto industry to walk them through a special bankruptcy program administered by a 'car czar,' rather than a judge as in a normal bankruptcy case. Our government will have a controlling stake in yet another significant portion of our economy.

I understand that our nation’s auto companies are hurting, but the last thing these companies and our economy need is a multi-billion-dollar bailout that does nothing to reform the failing business model that put them in this position in the first place.

For instance, GM is drowning under the high costs of their employee benefits. Due to the negotiation of long-term retirement and health packages, GM currently supports more retired employees than present employees. Because American automakers’ costs are so much higher than their competitors- an estimated $2000 more per car- their competitors are able to put in more extras without pricing their products out of the market. It's not that no Americans are buying cars; it's that foreign companies are producing cars that Americans want to buy.

Senator Voinovich, an Ohio Republican who has been a strong advocate for an auto industry rescue, summed up our concerns over the proposed plan the best:
“One of my concerns is that this bill doesn’t go far enough to secure viability plans from the auto companies that would best ensure that the money will be paid back to the taxpayers."

I'll keep you posted as things develop throughout the day and week.  

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