Republicans may have taken a beating in last month's national election, but they still wield plenty of power in the U.S. Senate. Opposition by several key senators to a federal bailout of the U.S. auto industry threatens to block a $14 billion loan package, at least until a new Congress convenes in January.
The White House and House Democrats hammered out a bill on Tuesday night, Dec. 9, that would give General Motors (GM) and Chrysler enough federal money to avert bankruptcy. The House of Representatives passed the bill Wednesday night. But despite measures that were added to strengthen the hand of a federal auto-industry overseer, the bill did not appear to have enough GOP support to gain the necessary 60 votes in the Senate. Majority Leader Harry Reid (D-Nev.) has scheduled a test vote on the bill for Friday.
The revised bill calls for government loans drawn from an Energy Dept. fund targeted to help the automakers to retool plants. A "car czar" would then be designated to work with the automakers over 90 days to wring concessions from debt holders, the auto workers' union, dealers, and management to hammer out a restructuring plan that would make the companies competitive with Asian and European rivals. If a plan couldn't be worked out to the approval of the "czar," Congress, and the Obama White House, the government would have the ability to push the companies into a bankruptcy filing—and would hold senior-debt status that should place it first in line to get repaid in a liquidation or court-directed reorganization.
Under the bill, if the automakers can show viability, more money—perhaps as much as $80 billion to $90 billion, by some estimates—might have to be appropriated from Congress if the recession drags through 2010. That money would be in the form of long-term loans to be paid back to the U.S. Treasury.
Despite the apparent low risk to the taxpayer of the initial auto package, several GOP senators steadfastly oppose it. Some of them don't think the bill provides adequate leverage to force the automakers to restructure outside of bankruptcy. But others don't want to give federal dollars to companies they figure will fail anyway. Senator John Ensign (R-Nev.) said the plan amounts to "the government picking the winners and losers instead of the market.…We're just going down further and further and further towards socializing our economy," he said. Ensign said casino workers feeling the brunt of the recession were as deserving of government help as auto workers.
Senator George Voinovich (R-Ohio), one of the GOP senators who support the bill, said Wednesday he did not think the bill could pass the Senate in this session. Senate Majority leader Mitch McConnell (R-Ky) said Thursday he won't support the House bill, but boosted an amendment offered by Sen. Bob Corker (R-Tenn). That amendment mandates a two-thirds cut in GM's debt by bond holders, forces the UAW to take wage and benefit cuts to equal those of Toyota and Honda workers in the U.S., and requires the union to take half the future payments owed to its health care fund in stock. If those provisions are not met by March 31, the automakers would be cut off and have to file for Chapter 11 bankruptcy protection. Republicans also want removal of any language requiring automakers to meet California�s fuel economy and emission standards, which are tougher than Washington's.
Bailing out the U.S. auto industry with loans is deeply unpopular. An ABC survey showed 56% of Americans do not support it. That is almost exactly the percentage of Americans who buy foreign-brand cars today. In some states, the opposition runs even deeper.
The White House disagrees with Senate Republicans who don't think the bill has enough muscle to force reform in Detroit. "The leverage is they have 90 days to make meaningful changes or the only alternative is Chapter 11," said White House Deputy Chief of Staff Joel Kaplan.
The automakers need their debt holders to take a substantial writedown on the bonds they hold, and to swap a substantial amount of debt for stock. Analysts and some members of Congress are also looking for the United Auto Workers union to take stock as half of the $21 billion payment that car companies owe it to cover future health care and benefits.
Automakers have insisted they need to avoid an actual Chapter 11 filing because customers will refuse to buy a car from a company in bankruptcy. "The lawmakers who believe that an automaker bankruptcy is the same as a steel company or airline are delusional," says independent marketing consultant Dennis Keene. "A Chapter 11 filing of one of these companies would move them quickly to liquidation."
The White House was successful Tuesday night in getting rid of a provision in the original bill that would have barred the automakers from continuing lawsuits that seek to block California and other states from enacting their own fuel economy and emission standards that are different from those passed by Congress.
On Tenterhooks Till January
That provision was one Speaker of the House Nancy Pelosi (D-Calif.) especially wanted. But she is expected to try and revisit that provision in the new Congress, which will likely have to authorize additional funds.
Legislative staffers said Wednesday they believed some package to help the automakers would pass, but couldn't predict when. "Either the Senate is going to take two whacks at this vote like they did with the Wall Street bailout, or it will have to wait until the next Congress in January," said one congressional aide.
The automakers are hanging on by strings. Chrysler, which has retained a bankruptcy law firm, projects it will be down to its minimum cash requirement by the New Year. General Motors said it needs an immediate infusion of $4 billion to avoid insolvency in January. Ford (F) says it has enough cash to last until 2010 unless total U.S. auto sales fall below most forecasts of 11 million next year. But a bankruptcy filing by Chrysler or GM, analysts warn, could also drag down Ford and hundreds of supplier companies because of the interdependence of the industry.
Business Exchange related topics:BailoutU.S. AutomakersU.S. Competitiveness