The Auto Bailout,Wind Up On Obama’s Plate

December 3, 2008

automakersPresident-elect Barack Obama’s administration-in-waiting is quietly exploring options for negotiating a bailout of the ailing auto industry when the Democrat takes office in January.There is a sense that a comprehensive solution is unlikely to come from whatever legislative action Congress may take before the end of the year.

For the moment, the CEOs of the Big Three car companies are focused on getting help from Washington sooner rather than later. Later this week, they return to Capitol Hil to make the case for why their companies deserve $34 billion in bridge loans to help rebound from staggering debt loads and enormous losses. Having failed to convince Congress last month, Ford’s Alan Mulally, General Motors’ Rick Wagoner and Chrysler’s Robert Nardelli are scheduled to testify this Thursday and Friday to present detailed plans on how the American automobile industry can survive the current economic woes and even thrive into the future.

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid said two weeks ago that if the Banking Committees in both chambers approve the Big Three’s recovery plans, they would consider reconvening the full Congress for a vote. But hashing out terms of what would amount to an unofficial Chapter 11 reorganization is highly unusual and unwieldy for Congress, especially a lame duck one. The executive branch is better built to handle such talks, and the incoming Obama administration is looking at all options: using money from the $700 billion Wall Street bailout, as many Democrats have been unsuccessfully arguing for; taking funds from the Federal Reserve; or tapping emergency monies similar to the stabilization fund Treasury used in the 1994 Mexico bailout.

Obama senior staff has been in contact with senior executives at all three car companies since October, the Obama aide said. The talks consist of phone calls, e-mails and meetings, and the companies have given a power-point presentation on their internal financials. “We’re not negotiating with the auto companies; we’re not saying to them, here’s our plan,” the Obama aide said. “We’re just trying to listen and understand and study a range of options so that we’re ready to move quickly and immediately.”

What’s unclear is if the Big Three, particularly GM, can last that long. While Ford, in the recovery plan it submitted Tuesday, said it can survive through 2009 without a loan — provided neither one of its two competitors go bankrupt and drag down the industry’s entire supplier network — Chrysler asked for $7 billion in loans and GM said it would need $4 billion by the end of this month and upwards of another $14 billion next year to survive. All told, the companies have asked the federal government for $34 billion (including a $9 billion emergency line of credit Ford requested) — $9 billion more than they said they needed last month. When pressed about what would happen if GM runs out of money between now and Inauguration Day on January 20, the Obama aide repeatedly refused to discuss hypothetical events.

Obama’s team isn’t the only one who recognizes the executive branch could have an easier team pulling off such a rescue operation. On Tuesday Pelosi made it clear that the Bush administration has the authority to act at any time without Congress, saying that “an intervention will happen either legislatively or from the Administration…I think it’s pretty clear that bankruptcy is not an option.” Until now President Bush has been unwilling to consider such an approach. But on Tuesday, the same day the auto makers reported the worst month of sales in 26 years, the White House did not rule anything out.

“We’ll want to take a look at their plans in detail and see if they meet a credible test for viability,” deputy press secretary Tony Fratto said. “We’re pleased to see that everyone is now on board with what we’ve been saying for some time — that a credible plan for financial viability is necessary if we’re even to consider taxpayer assistance.”

Democrats had been looking to divert $25 billion of the $700 billion bank bailout funds allocated in September to help the auto makers, a move opposed by many Republicans critical of an industry that has long resisted tighter fuel efficiency standards, continued to invest in gas guzzling trucks and SUVs even as oil prices soared and given its union unsustainably generous deals on salary and benefits. “I don’t believe this is a good idea to take $25 billion and give it to the three major car companies, which I think have a business plan that’s doomed to fail,” Senator Lindsey Graham, a South Carolina Republican, told Fox News Sunday, adding that Republican members are not wild about the Democrats’ demand that the Big Three present their plans to Congress. “The idea that you would take three failed car companies, bring [a plan] to 535 members of Congress and let us pass judgment on it doesn’t make a lot of sense to me. I don’t know how to run a car company.”

The GOP, for its part, has proposed using the $25 billion appropriated earlier this year in the energy bill to modernize the industry, a move opposed by Dems as forcing Detroit to choose between its present and future. Giving the automakers a second pass at convincing Congress does nothing to resolve this ideological disagreement. What it does do is give them a chance to repair their beaten-down image. In what became an infamous public relations disaster, the executives flew in on private jets last month to beg for money. Then, in two hearings before the Banking Committees, the three appeared to blame everyone but themselves for their current predicaments. Two of the three refused to give up their salaries and a few members openly called for all three CEOs to resign.

This time around all three are making a symbolic gesture by driving hybrid cars from Detroit. Ford and GM have pledged to sell at least some of their jets and all three CEOs said they would forgo salaries if they get the help they need, though that may not satisfy critics who claim the companies need entirely new management. More significantly, GM has pledged to consolidate its sprawling number of brands (focusing on Chevrolet, Cadillac, Buick and GMC), cut more than 20% of its remaining jobs, shutter almost a quarter of its factories, and try to reduce crippling labor costs by reopening negotiations with the United Auto Workers. Ford, in its plan, stated that it would roll out all-electric models within two years.

Yet the future of the Big Three companies rests in their ability to win over not just the lawmakers but also the public. When Congress was debating on whether to bailout Wall Street, public opinion began to turn when folks lost half their 401k investments practically overnight. Though the failure of just one of the Big Three could have similar repercussions on the stock market, the public is not feeling the pressure just yet to support such a move. A recent USA Today/Gallup poll found that 47% of Americans believe that providing relief to the industry is not very important.

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One Response to “The Auto Bailout,Wind Up On Obama’s Plate”

  1. Reality Says:

    Bailout 2008, a poem by David Jeffrey:

    Like a bloodied warrior, laying broken and torn.

    Like a dying soldier, hopeless and forlorn.

    But the blood, it be green, the color of money.

    And the soldier is an economy, and it is anything but funny.

    Broken are it’s people and shattered are their dreams.

    Thanks to the ultra rich and their fool proof schemes.

    It is a tragedy with more pain to come.

    Finance will be Hell, and their wills will be done.


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