President George W. Bush and congressional leaders are close to an agreement to help General Motors and Chrysler survive for a few more months until President Barack Obama arrives. Obama will then need to develop a longer-term assistance, restructuring, and rejuvenation program. The White House indicated on Monday that a deal was “very likely.” Assuming that they get to “yes,” this agreement could be voted on as soon as Wednesday, December 10, or Thursday, December 11.
The fate of the package, and these two companies, will likely depend on the votes of the 29 conservative senators who voted for the Emergency Economic Stabilization Act—the bailout of the big financial companies. Will they also vote to assist the ailing auto industry, or will they oppose support for Main Street after bailing out Wall Street?
Senators with 67%+ American Conservative Union Lifetime Rating Who Voted for Emergency Economic Stabilization Act of 2008
|State||Party||Senator||ACU lifetime score||H.R. 1424 as amended|
|Avg. ACU Score: 88|
Some prominent conservatives oppose any aid for the U.S. auto industry. For instance, columnist George Will advocates opposition to auto aid, noting that, “No one thinks that the failure of an auto manufacturer would pose systemic risk to the economy. Americans would just buy a different mix of cars.”
Even before the White House and congressional leaders reached an agreement, Sen. Richard Shelby (R-AL), the ranking Republican on the Senate Banking Committee, was threatening to filibuster the bill to kill it before the 110th Congress adjourns for the year.
If there is an agreement, some senators from auto states worry that the bridge loan bill will not receive the super majority of 60 votes it needs to end a filibuster and pass the Senate. Sen. Carl Levin (D-MI) fretted that the bill would need support from 15 Senate Republicans, and that this was “a real hill to climb.”
Seventy-four senators voted for the $700 billion financial bailout package for Wall Street. Based on the rankings compiled by the American Conservative Union, 29 senators who vote with the ACU at least two-thirds of the time supported the bailout bill (see chart). It would have failed if half of these senators voted against it.
Most progressive and moderate senators are likely to vote for the auto package. It seems unlikely that the conservative senators who voted against the financial bailout will reverse course to support the auto program. This means that enough of these 29 conservative senators must vote for the $15 billion for auto loans, which equals just 2 percent of the financial package, to keep the auto industry afloat. This loan is particularly vital since the auto industry is linked to 1 in 10 American jobs and could put 2.5 million more Americans out of work.
The beneficiaries of the $700 billion financial package had to do very little before Congress approved their bailout. The auto companies have had to testify before very skeptical senators and representatives on two occasions, and submit restructuring plans as part of their efforts to receive $34 billion in bridge loans. Some observers wonder if there is a double standard, as suggested by United Steel Workers President Leo Gerard: “We’ve treated the people who take a shower after work much different than we’ve treated the people who shower before they go to work.”
The tentative agreement would grant bridge loans totaling $15 billion to General Motors and Chrysler to help cover expenses for the next several months. These funds would come from the Advanced Vehicles Technology Manufacturing Incentive Program, created under the Energy Independence and Security Act of 2007. These funds are supposed to help auto companies retool to build the super-efficient cars of the future.
The Big Three auto companies’ plans include nearly $20 billion in funds for retooling from this program, in addition to their request for $34 billion in bridge loans. A number of small, innovative companies are also seeking loans from this fund to build their fuel-efficient vehicles. The agreement sets aside $500 million to continue loans for these efforts. Speaker of the House Nancy Pelosi (D-CA) said that there must also be a “guarantee that those funds will be replenished in a matter of weeks” to continue these efforts. The 111th Congress should restore the retooling funds as part of an economic stimulus package.
Under the deal, companies receiving bridge loans would have to submit more detailed restructuring plans to receive the additional funds they need to last beyond late March. Ford would receive a line of credit, but the company does not require loans at this time unless the economy becomes significantly worse.
The bill would create a position to oversee the restructuring of the auto companies—a “car czar”—who would create guidelines for their reorganization. The car czar could revoke the loans if the companies lag behind on the implementation of their plans. The czar would also review and approve any major business decisions, including transactions of $25 million or more.
The automakers would have to limit executive compensation, pay no dividends, repay taxpayers before shareholders, and share any profits with the government. The special inspector general who oversees the Wall Street bailout would also have auto company oversight authority.
The draft bill also requires the recipient companies to drop their legal challenges to the California motor vehicle greenhouse gas standards, which would reduce emissions by 30 percent by 2016. The Bush administration may demand that this safeguard be removed, as they would end legal challenges to California’s standards and similar laws in 16 other states. Taxpayers in these states should not have to lend money to auto companies and then be sued by the same companies to block their state’s law. An analysis of the GM and Ford plans by the Natural Resources Defense Council suggests that their new cars can meet the first phase of the California standards.
The agreement is imperfect. It ought to provide long-term assistance from the $700 billion Troubled Assets Relief Program rather than the retooling loan fund. Nonetheless, the worsening economic news makes a rescue of the auto industry even more urgent. In November, more than an additional half a million Americans became unemployed—the highest monthly number since 1974. If all three auto companies fail, an estimated 2.5 million people could lose their jobs. It is up to the conservative senators who saved white-collar jobs by supporting the financial bailout to decide that these blue-collar jobs are worth saving too.
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Daniel J. Weiss