U.S. automakers face skeptical senators on aid plan

Friday 05th December, 06:00 AM JST

WASHINGTON —

U.S. automakers drew fresh skepticism from lawmakers Thursday in a rocky confrontation over their pleas for an expanded $34 billion rescue package they say they need to survive. Congressional analysts said one bailout plan under consideration would fall short of what the carmakers want.

With time on the current Congress running out, opposition to the bailout appeared to be as strong as last week—before Detroit’s Big Three auto chiefs returned to Congress with more detailed plans on how they would spend the money.

Several lawmakers in both parties are pressing the automakers to consider a so-called “pre-packaged” bankruptcy in which they would negotiate with creditors in advance and downsize, then file for Chapter 11 protection in hopes of emerging quickly as stronger companies. The Big Three have publicly shunned the notion, saying it would kill sales by destroying customers’ confidence—but executives have indicated in recent days that it might ultimately be necessary.

The executives all agreed in Thursday’s hearing that a multibillion-dollar bailout deal would include a supervisory government board that could order major restructuring of the companies if deemed necessary for survival—similar to the results in many reorganizing efforts under bankruptcy law.

United Auto Worker union President Ron Gettelfinger, aligned with the industry in pressing for the aid, told senators at a Banking Committee hearing that any kind of bankruptcy, even a pre-packaged one, was not “a viable option.” Gettelfinger said consumers would not buy autos from bankrupt companies, no matter what the terms of the arrangement are.

He also warned that in the absence of action by Congress: “I believe we could lose General Motors by the end of this month.” He said the situation was dire and time was of the essence.

Meanwhile, Rep Barney Frank, a Democrat, who has been dealing with both the financial bailout and the auto rescue proposal as chairman of the House Financial Services Committee, said President-elect Barack Obama needs to play a more significant role on economic issues.

“He’s going to have to be more assertive than he’s been,” Frank said at a Consumer Federation of America conference in Washington. “At a time of great crisis with mortgage foreclosures and autos, he says we only have one president at a time. I’m afraid that overstates the number of presidents we have. He’s got to remedy that situation.”

At the Capitol building, the Big Three chief executives told the senators they hoped to make amends for past blunders. “We made mistakes, which we’re learning from,” General Motors chief executive Rick Wagoner said. Ford chief executive Alan Mulally also acknowledged big mistakes, saying his company’s approach once was “You build it, they will come.”

“We produced more vehicles than our customers wanted, then slashed prices,” he said. But as a result of these past mistakes, “we are really focused,” he said.

Congressional Democrats have urged the administration to tap into an already enacted $700 billion financial bailout program to help the auto industry. The Bush administration has said that it has no intention of doing so, and would prefer aid be taken from an earlier $25 billion program to help the industry retool its plants to make their vehicles more fuel-efficient.

But congressional budget analysts have privately told top Democrats that tapping that program wouldn’t come close to covering the $34 billion that carmakers now say they need to survive.

It would yield only $10 billion to $15 billion in short-term loans, the analysts claimed, according to congressional officials who spoke on condition of anonymity because they were not authorized to disclose the analysis.

The Big Three executives made the trip from Detroit in new-model hybrid autos made by their respective companies, two weeks after a botched appeal for $25 billion in which they were chided for flying on private jets to beg for money.

Chrysler CEO Bob Nardelli promised that his company, recipient of a previous government-subsidized rescue loan in the 1970s that it repaid, would repay taxpayers by 2012 and would devote itself to manufacturing “fuel-efficient cars and trucks that people want to buy.”

The Big Three executives said they would be willing to work under a federal oversight board as a condition for receiving financial aid from the government.

Dodd and several others on the panel asked them if they would agree to a setup like the one established for the U.S. bailout of Chrysler Corp in 1979.

Sen. Mike Crapo, a Republican, said such an oversight board would be “basically a federal restructuring trustee” with some of the same powers as a bankruptcy court.

“I did not hear any objection from any of the three of you to the establishment of an oversight board or whatever we call it, of a federal oversight entity that has the literal authority to impose restructuring conditions and to enforce those as a matter of law as these dollars are utilized. Am I correct?” Crapo asked.

The three answered in the affirmative, although Ford’s Mulally said, “I probably need to think about that a little bit. It sounds right, but I just don’t know all of the implications of that.”

Sen. Richard Shelby, the senior Republican on the panel, complained that the pricetag on the package had jumped since the trio last appeared just two weeks ago. He pressed the automakers to explain why, and to justify how such aid would not simply “prop up a failed business model for a few months ... and how are you going to pay it back to the taxpayers?”

Banking Committee Chairman Chris Dodd, a Democrat, supports helping the industry, but said that detailed plans submitted earlier this week on how the companies would use low-cost federal loans to reorganize still left a lot of questions unanswered.

But Dodd also said that doing nothing “plays Russian roulette with the entire economy of the United States.”

____

Associated Press writers Julie Hirschfeld Davis, Erica Werner and Jennifer Loven in Washington, Kimberly S. Johnson in Detroit, and Joe Milicia in Cleveland contributed to this report.

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Latest 15 of 31 Total Comments Show All

zurcronium at 01:44 PM JST - 5th December

VOR.

yeah, right. Lets put bush in charge then. He can work his magic on detroit like he did with the federal budget, which as in surplus when clinton left and is now heading for one trillion in debt this year.

The reason the auto companies are failing are because the execs are plain stupid and pure greedy. They gutted their companies decades ago to make more money for themselves. It is cannibal capitalism. Same as what destroyed the financial industry this year. And the republicans protected them all while they did this.
adaydream at 02:17 PM JST - 5th December

rjd_jr at 11:47 AM JST - 5th December Yes SezWho, but again what about the tens of thousands of Americans who have lost their jobs in other industries, and many more in the future that will? I just don't understand bailing out a certain industry for the sins of the execs and UAW.

I understand this sentiment, I really do.

But just because we couldn't help bailout other industries we just turn our backs now and say, to hell with you. < :-)
apecNetworks at 05:24 PM JST - 5th December

This post will be lost on many people, but since I am one of the few who have a distinct perspective of this problem, I will state it.

This problem has been developing for a long time and the actual problem is more than how the Big Three sees it and how the Senate sees it. The problem is much more complex than the cars being produced.
skipthesong at 05:28 PM JST - 5th December

Let them go down. Its time the market has been washed out.

Government and Business don't mix. Government, stay the hell out of business.

They need to go down not only due to their screw ups, but also to teach American workers and their unions a lesson or two
SuperLib at 05:35 PM JST - 5th December

Does anyone really know why the companies are failing? So far I've heard it's because their execs are stupid, greedy, and arrogant. Seems pretty harsh to punish millions of people to strike a blow against people whose crimes you can only define in general ways. Got anything more concrete?

The execs already have their money. They'll get absorbed by other companies since they're such a small part of the overall workforce. Or maybe they'll just take the millions they already have and retire early?

So tell me again....who are you trying to hurt?
SezWho2 at 07:14 PM JST - 5th December

SuperLib,

Bingo! If refusing to provide any assistance is the best strategy and the one that will cause the least pain for the most people, then we should do that. However, I don't think critics of some form of assistance to auto makers have show that is the case. Spite will leave us noseless without improving the prospects of our face.
skipthesong at 08:08 PM JST - 5th December

So tell me again....who are you trying to hurt?" The CEO's and the shareholders who elected them should be hit first. Then the unions. Have you seen the difference in pay with GM and Toyota - its like more than half. The unions are a big part in GM's downfall. I am not against unions, but there are some idiots, just like these CEO's, running them.
VOR at 09:18 PM JST - 5th December

zurc; there you go again, placing blame without checking the facts. The big 3 are huge contributors to the democratic party and if you take some time to do a little fact checking you will be astounded how deeply indebted the democrats are to not only management but also the UAW. What is playing out on television is just a ruse, the Democrats will be paying off some of their political debt to the auto industry using American taxpayer dollars soon enough. the media will find some way of selling it to the public and the nation will continue to go down the toilet like we have over 58 of the 70 odd years of Democratic rule.

The city of Detroit and the state of Michigan are just example how a democrats run things and a sign of things to come. Almost time for another Tea Party.
Sarge at 09:25 PM JST - 5th December

I hear the cheapest room at the hotel where GM chief Rick Wagoner is staying is $399 a night.
Sarge at 09:31 PM JST - 5th December

And I'm pretty sure Rick's not staying in the cheapest room.
rjd_jr at 10:39 PM JST - 5th December

I'm not completely heartless, I have said previously that I would not mind my tax dollars if it actually went to help the workers themselves, by offering help for schools, retraining, job search, etc. etc. (though it would still bother me somewhat that these people are being helped and not others in other industries, and all workers are covered by the same basic unemployment assistance/benefits, so yes in fact they are being treated extra special).
VOR at 11:20 PM JST - 5th December

rjd jr, there are already programs in place so i'm not sure if you are suggesting special programs specifically to transition all auto workers (blue collar, white collar, union, non union) affected by the restructuring of GM, Ford and Chrysler onto other career paths? If they live in Michigan, what is the states responsibility? What about workers and business owners providing whose livelihood depends on patronage from those employeed by the auto industry? Where does it stop?
adaydream at 02:58 AM JST - 6th December
Here's the really stupid part.

The treasury jumps all over itself to loan money to those firms who lost so much on derivitives, which were backed by absolutely no money at all.

But we have automakers that also want to borrow under the same program and they have cars. They have a tangible object.

Let's see... investers with derivitives = no money = loan under TARP
```
         autoworkers with cars = calateral cash at least for cars = no loan under TARP
```
Now this makes no sence at all. < :-)
Betzee at 05:05 AM JST - 6th December

This past month recorded the highest number of job losses in 35 years. 35 years! This is all taking place against the backdrop of government insolvency, corporate bankruptcy and unprecedented levels of personal indebtedness. The future ain't lookin' good....
adaydream at 06:53 AM JST - 6th December

VOR I'm going to remember your words, especially after the democrats have an opportunity to take back some control.

The $4Trillion give away, prescription drug plan and tax breaks after breaks and more tax breaks were forced through by republican controled government.

I'm just so glad that there were enough republicans that saw through the personal retirement accounts/social security. We would have seen the current $7Trillion loss and even more. < :-)