Senator Corker Weighs the Auto Bailout
There are plenty of battle lines being drawn over a possible taxpayer bailout of the U.S. auto industry. There's the unionized industrial Midwest vs. the nonunionized tech- and finance-oriented coasts. There are conservative, free-market red states vs. liberal, regulation-minded blue states. And there are lawmakers who, surveying this landscape littered with political land mines, would like nothing better than to kick the auto industry can down the road for President-elect Barack Obama to deal with.
Caught somewhere in the middle is Senator Bob Corker (R-Tenn.), who won a highly publicized election in 2006 against then-Representative Harold Ford Jr. (D-Tenn.). Freshman senators don't typically have much influence or voice in the Senate. But to some observers, Corker—who in the past has been a union-card-carrying construction worker, owner of a small business, and the mayor of Chattanooga, Tenn.—has distinguished himself in the bailout debate by immersing himself in research, data, and arguments that go beyond the easy pro and con positions. He has been instrumental in moving the loan package forward while grilling the CEOs of General Motors (GM), Ford (F), and Chrysler and toughening up the conditions for a rescue (BusinessWeek.com, 12/9/08). Senate Banking Committee Chairman Christopher Dodd (D-Conn.) singled out Corker at the Dec. 4 hearing with the CEOs as a "workhorse" on the committee and "invaluable."
Corker is uniquely positioned in the debate. Tennessee is the only state in the union that is home to U.S., Asian, and European auto assembly plants: a unionized GM factory in Spring Hill, Tenn., that once built Saturns (and hosted the annual cult-like Saturn owner gatherings) and now makes the Chevy Traverse crossover vehicle; a nonunion plant owned by Nissan (NSANY), which has its U.S. headquarters in Nashville; and a Volkswagen (VOWG) plant that's under construction near Chattanooga. That VW plant will be the first the company has opened in the U.S. since it closed a Pennsylvania assembly factory in the 1980s. The state is also home to numerous auto suppliers that feed parts to GM, Nissan, and other automakers with operations in the South.
Whereas many of his colleagues have staked out firm positions on one side or the other of the debate, Corker has been harder to pin down as pro- or anti-bailout. In a nearly hour-long conversation with BusinessWeek Senior Correspondent David Kiley, Corker seemed to lean toward a loan package, but with the option of forcing the companies into Chapter 11 bankruptcy if specific sacrifices can't be wrung out of labor and bondholders. Here is an edited version of their conversation:
How much of the opposition in the Senate to a loan package has to do with local politics? In Alabama, you have transplants and no Detroit Three presence; Senator Richard Shelby (R-Ala.), the ranking Republican, has had a lot more airtime than you. And then there are representatives and senators with bailout-fatigued constituents who don't buy American cars and have no Detroit factories in their backyards.
It has not been an issue of local politics. For me there is no issue of local politics. I try and dig into these issues and present thoughtful responses to the situation. In defense of Senator Shelby, I knew where he was going to be on this issue before this ever arose. He was against the Chrysler loans back in 1979. He was always going to be against this, as he was against the Wall Street bailout legislation. In his case, it's not the politics of the auto industry. That's just who he is. And the people of Alabama seem to support where he is. He was taken out of the negotiations on both bailouts because he is just flat-out against this kind of intervention. He has been consistent on that.
What are your constituents telling you? You have a mixed bag of GM, Nissan, and now Volkswagen in your state.
I want to say that I have been getting to know [GM CEO] Rick Wagoner, [Ford CEO] Alan Mulally, and [Chrysler CEO] Bob Nardelli, and these are good people with good ideas. And even though my views seem to be very much at odds with [UAW chief] Ron Gettelfinger's, I really appreciate his testimony. The ones I know the best and am hearing from the most, I'd say, are dealers. I just talked to one dealer last weekend who is representative: He's a civic leader. He is so stressed out that it's like talking to someone on speed.
The problem is they have no one coming in to buy cars. Regardless of what happens this week, the legislation, if passed, is not going to move people to buy cars. The dealers are calling me and saying, "We hope these guys survive," but they also tell me not to let them off the hook. "Keep doing what you are doing," they say. "Make them really adopt reforms that will fix the problems for good." These are the guys at the end of the food chain. They have their life's net worth tied up in these businesses. If their businesses fail, many will have to file personal bankruptcy. They don't have recourse like the automaker CEOs.
You spent time talking to a Cerberus board member who said the hedge fund was not going to invest any more money in Chrysler. You took some people at the hearing by surprise with such a harsh, but I would have to say enlightened, grilling of Nardelli on this point. Who did you talk to? And do you think Congress should act as investment banker for a merger between GM and Chrysler that the private banks wouldn't get behind?
I spent the Monday and Tuesday before the last hearing in New York with six or seven different analysts. Almost every one, I think, had a dog in the hunt, either as an investor in or banker for the Big Three. I also spoke with a Cerberus board member, though I'd rather not say who. I also spoke with investors in Chrysler who put their money in via Cerberus. Then I met with Mulally, [President] Fritz Henderson at GM (BusinessWeek, 11/20/08), and the UAW on Wednesday.
In Chrysler you have a company that is not going to survive as a stand-alone. It's not going to happen. They aren't investing in new products. They are not investing in new technologies. They do have a dealer network that would be valuable to a foreign automaker. The argument against doing it is that GM and Ford have public money and Chrysler has private money. To me, it's all private dollars. The difference is that GM and Ford have no ability to raise more private dollars right now. Cerberus could inject more private dollars into Chrysler if they wanted. But they have made the decision that they aren't going to. That tells me it's not worth the taxpayer propping them up to try to stay independent.
Are you of the mind now that Chapter 11 is not a good option and that the better road is for the government to impose Chapter 11-like oversight and conditions, without the stigma of bankruptcy scaring off would-be car and truck buyers?
All along, my point of view has been how do we solve this. That's the world I came from. Where I am now [in the Congress] there is too little of that. I can tell you that the Senate and House Republicans have been totally uninvolved in the negotiations between the Congress and White House. We have laid out some thoughts. I do not believe that any plan can succeed (BusinessWeek.com, 11/20/08) that does not materially deal with the companies' capital structures. They have far too much debt. Labor issues and what labor is willing to put on the table are important, too. But the debt structure is far more important.
If we start writing checks, the bondholders will have no incentive to take a haircut on the debt. GM alone has $28 billion in unsecured debt, and $21 billion due to the UAW for future health-care payments. To put, in GM's case, maybe $70 billion of debt on top of that? There is no business model for that. The UAW has to take half their debt in equity, and the bondholders have to take half their unsecured debt in equity and a total of 30¢ on the dollar, or this has no chance to succeed.
This is a tremendous opportunity for GM and Ford [to achieve maybe four years of restructuring in one year]. I mean that in a positive way. This is an opportunity that comes along once in 50 years.
What's the hole in the plan?
First, we could lose the leverage over the union and bondholders if we start writing checks without spelling it out in the legislation. Second, the alternative is Chapter 11. The bondholders have credit default swaps. If the automakers file Chapter 11, some of them could make out as well if they don't cooperate.
But you do think that this could all take place without Chapter 11?
I have talked to Treasury about how it could go. They changed the capital structures of Fannie Mae (FNM) and Freddie Mac (FRE) over a weekend. Of course, it could be done. We've thrown a lot of things out, but they have been rebuffed [by Democrats].
What specifically has been rebuffed?
I don't think there is a desire to put concrete concepts in the legislation. The most simple one is to force the UAW to be at pay and benefit parity with the foreign transplants by Mar. 31. I agree that the numbers thrown around about how much UAW makes have been wrong. But the total cost of benefits to workers and retirees are real numbers. You have to get those costs pared. And make the money conditional on the debt holders taking a substantial haircut. That language should be in the bill. There is a lot of dancing around. Do I think the language will be in the final bill? No.
So how will you vote?
I'm still open-minded, but the bill language will be key for me.