Filed under: Government/Legal, Chrysler, LLC., Ford, GM
House Republicans throw wrench in the works, propose their own American Automotive Reorganization and Recovery Plan
We've gone from $25 billion to $34 billion and back down to $15 billion. The Detroit 3 CEOs have appeared before Congress twice. Congressional Democrats and the White House have spent the last few days wrangling over the final version of a long-in-the-making Auto Rescue/Bailout Bill and just before it's ready to take center stage on the floor of the House and Senate, this happens.
House Republicans today have introduced a new bill in the 11th hour as an alternative to the bill we've all been talking about this past week that was engineered by Congressional Democrats and the Bush administration. The new House bill proposes that instead of handing over loans to U.S. automakers before a viable roadmap for their long-term sustainability is in place, the government should instead provide insurance that would be funded in part by the automakers themselves and cover up to 50% of the losses of new investment in the case of default. This can be difficult to follow, but it's similar to a plan introduced during recent Congressional debates over federal aid for the financial industry. In essence, the U.S. government would be insuring private investment in the Detroit 3, which House Republicans hope would help "unlock immediate private investment" in them. If the U.S. auto industry still went under, those investments would be covered up to 50% until March 31, 2009.
House Republicans think their bill is superior because it doesn't make the U.S. taxpayer a direct stakeholder in the automakers, while we think it's ludicrous because there's no guarantee that investors would suddenly pour money into Detroit just because half of their risk is covered. It sounds like a really fast way to lose half a fortune to us.
You can check out verbiage of the American Automotive Reorginization and Recovery Plan for yourself after the jump and sound off in the comments if you think it's the right way to go (or not).
[Source: Politico via TTAC, Photo by Brendan Hoffman/Getty]
GOP Leaders Propose American Automotive Reorganization and Recovery Plan
Boehner: GOP Plan "Protects taxpayers and helps working families by allowing the auto companies to become competitive again, without nationalizing an industry in need of real reform – not another taxpayer bailout."
WASHINGTON, DC – House Republican Leader John Boehner (R-OH) and his House GOP leadership colleagues today introduced an American Automotive Reorganization and Recovery Plan as an alternative to legislation scheduled for a vote today by House Democratic leaders to provide $15 billion of taxpayer funds to the "Big Three" automakers with inadequate assurances that American taxpayers will be reimbursed. Boehner issued the following statement on his opposition to the Democrats' legislation and the Republican alternative:
"Washington must address the challenges facing the auto industry and our entire economy not through endless taxpayer-funded bailouts that prolong workers' pain and put taxpayers' money at risk, but by fixing problems and removing barriers that make it harder for families to prosper. The House Republican American Automotive Reorganization and Recovery Plan protects taxpayers and helps working families by allowing the auto companies to become competitive again without nationalizing an industry that needs real reform, not another taxpayer bailout.
"Let's be clear: our nation – and my home state of Ohio – needs a healthy auto industry that produces cars Americans want to buy and provides good-paying jobs. But during these difficult economic days, stressed-out families and taxpayers cannot afford to part with another dollar of their hard-earned money without strict assurances that they will recover these funds in short order. The Democrats' proposal does not provide adequate assurances to ask them to take this substantial risk. Instead of laying the groundwork for the long-term viability of the auto industry, I'm concerned that this proposal asks taxpayers to further subsidize a business model that is failing to meet the needs of American workers and consumers."
NOTE: House Republican leaders today introduced the American Automotive Reorganization and Recovery Plan to protect taxpayers and help auto workers and their families by allowing the auto companies to become competitive again. Rather than a taxpayer-funded government bailout that replaces private investment, the House GOP plan proposes that the government provide insurance, funded by the participants with a modest FDIC-like fee, which would cover up to 50 percent of the losses of new investment in the case of default, helping to unlock immediate private investment A full summary of the plan follows and is available here:
The American Automotive Reorganization and Recovery Plan
Working families throughout our country are struggling to pay their bills and facing economic anxieties not seen in America for generations. Employers are finding themselves torn between staying in business and laying off people over the holidays. Nowhere are these challenges more acute than in states that are heavily dependent on auto manufacturing. It is essential that Washington address these challenges not through taxpayer-funded bailouts that prolong working families' pain and put taxpayers' money at risk, but by fixing problems and removing barriers that make it harder for working families to prosper.
Washington has failed this basic test with respect to the American auto industry. Republicans want to make certain that in its response to the resulting crisis, Washington does not fail American taxpayers as well. A responsible plan should do two things: it should protect taxpayers, and it should help auto workers and their families by allowing the Big Three to become competitive again. The Democrats' plan does neither. Congress should not be stampeded into rubber-stamping a plan that guarantees failure at the taxpayers' expense.
The Democratic Bailout proposal has three fundamental flaws:
• The only thing crazier than trusting the same management and union officials who got the Big Three into this mess to get them out is trusting a bunch of Washington politicians and bureaucrats – the very same people who ran up a $455 billion deficit last year. American auto workers and their families deserve better.
• If no private investors believe the Big Three restructuring plans are realistic enough to support with their own money, why should we put up taxpayer money? American taxpayers deserve better.
• The Big Three restructuring plan and the Democratic proposal lack accountability. There is no guarantee that once they get taxpayer money the restructuring they promise will occur. Once the taxpayers prop them up once, there will be a big incentive to keep bailing them out – keeping the industry dependent on government aid, lashing it to the majority's political agenda, and further denying American auto workers the security of a viable industry that is back on its feet and ready to compete. American auto workers and their families deserve better.
What We Should Be Doing: The American Automotive Reorganization and Recovery Plan
Hard Benchmarks:
On December 2, the Big Three presented to Congress their plans for restructuring. While the plans included laudable goals, too few details were provided as to how the companies will actually achieve the restructuring and the savings they have promised. In some instances new agreements to achieve the savings would not be entered into for months or perhaps years.
The Big Three must lock in the restructuring they have promised in a matter of weeks, not months or years. Congress should instead establish firm benchmarks and a tight timeline for restructuring. Such benchmarks will include for example requiring that by March 31, 2009 each company should reach agreement whereby:
• The companies' creditors agree to a framework to reduce each company's indebtedness by at least 1/3.
• The UAW holds to concessions already made and further:
o Concedes the elimination of Supplemental Unemployment Benefits;
o Concedes elimination of the Jobs Bank Program;
o Agrees to either reduce company retiree health care obligations or otherwise convert a portion of such obligations into equity; and
o Agrees to reduce wages and benefits to the levels paid by non-Big Three manufacturers.
A Process for Reaching Expedited Agreement, Instead of Nationalizing America's Auto Companies
Because of the many legal and contractual hurdles to restructuring, the companies are urged to accomplish their restructuring through the use of a pre-packaged bankruptcy or another mechanism to bring all stakeholders to the table for an agreed-upon determination of their future. It is important that these stakeholders reach reasonable compromises amongst themselves. Creating a government bureaucracy or a "car czar" to arbitrarily pass judgment on the thousands of details involved with a restructuring is akin to nationalizing the auto companies.
Interim Financing: Insurance, Rather than a Taxpayer-Funded Bailout
The Big Three may need some form of interim financing as they finalize their restructuring. In normal economic times, if their restructuring plan is considered viable, such financing should be available in the private market. Because of the current credit crisis, limited assistance may be appropriate in the form of insurance, rather than a taxpayer-funded government bailout that replaces private investment. We propose that the government provide insurance, funded by the participants with a modest FDIC-like fee, which would cover up to 50% of the losses of new investment in the case of default, helping to unlock immediate private investment (not unlike debtor in possession financing). Such insurance would expire on March 31, 2009. This proposal ensures that taxpayers are protected and provides a powerful incentive for the Big Three to quickly implement their restructuring plans.
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Reader Comments (Page 1 of 4)
Sea Urchin 2:06PM (12/10/2008)
All right Republicans.
I think they are right, but let's be honest here, if these were Big 3 oil companies they would not be doing this.
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Mike 2:19PM (12/10/2008)
Hell, if the Big 3 were banks or a very large insurance company, they would have given them a blank check, oh wait that was October.
Does anyone think the GOP is playing "Screw the Country" since they lost the majority of the Senate, Congress, and the White House? Because it beginning to feel like it.
mmstowes 2:32PM (12/10/2008)
Between some of the Republicans and Pelosi and company, it sure as hell feels like they're looking out for the good of the party but not the good of America as a whole. The Dems want taxpayers to foot the bill, the Reps want private industry to foot the bill, but either way, the laborers are still the ones getting screwed. There's no way around the inevitable, but you'd think folks out there would be smarter about the way they go about things. At some point, you want a government that works FOR you, not for itself. Afterall, we're the ones electing a majority of these idiots.
Then again...what's that say about us that we're allowing ourselves to constantly get kicked in the teeth?
BoxerFanatic 2:49PM (12/10/2008)
@mike,
They are saying "SAVE the country.", in a weak, political way that isn't the "Go Pound Sand." response that they should have.
It is this bailout bullcrap that is going to screw this country long and hard. Socialistic programs have hurt this country since well before the depression, and made the Great Depression what it was, when no one else suffered as long in the 30s as the US did.
I am going to repeat myself from the tesla thread, because it bears repeating, until people figure it the hell out.
Doing business correctly and profitably...
...IS A BUSINESS PROBLEM, NOT A GOVERNMENT PROBLEM, NOR A POLITICAL ISSUE.
IT IS NOT MY PROBLEM. I am a taxpayer, and I want no damn part of any
of this. Not ANY of it, from the banking, auto, or ANY industry, and
certainly not bailing out other states, either.
AGAIN, Where is the value supposed to come from that is going to back up the money that they are printing for all of the spending?
I don't care if it is green, and in so far as keeping the economy working, I don't care if people lose their jobs. This bail out business is going to kill the whole economy, and then EVERYONE will be worse off.
'Green' is bullcrap politics at it's core, real honest efficiency will happen anyway, when people care about real efficiency, not political posturing. Efficient products and processes will take hold, if it is real efficiency that people want, for real reasons. Cramming it down people's throats, and taxing them for it is not the answer.
Companies don't exist to give people work. Jobs lost will be transferred to some other job, if people are motivated enough to work. The Auto INDUSTRY will re-invent itself if it is required to. There is a demand for the product, and there will continue to be, if the government doesn't bankrupt the entire country and economy, with this bullcrap.
These companies can re-organize, they can re-focus and re-assert themselves, but bail outs NEVER do that. Bail outs try to remove, but really only delay bad consequences, and make the consequences WORSE. It isn't a loan, if it isn't from a BANK. The government will never call these loans in for the same reason they are talking about giving them out right now! IF this were solvent business practice, a BANK would be financing these companies, and making their percentage!
Bilking the taxpayer, and their great grandchildren, while destroying the foundations of the country and the economy, and eradicating freedom by abandoning the Constitution will be more severe. Our liberty and opportunity will be gone, the next time we go looking for some of it, and it is costly to get back. It usually costs in blood.
This, as well, is just another revolution in a snowball rolling down a big hill, gathering mass and speed. We will be crushed by an avalanche at the bottom.
k.w.a 2:52PM (12/10/2008)
It pays to be a Washington/Wall Street insider. The CEOs of The Big 3 are not.
It's funny to see how badly they're getting treated. Here in the Midwest, the Big 3 CEOs are the top dogs, almost like local celebrities. On the East Coast, as you can see, they're nobodies. All these people from NY and DC are interconnected socially and monetarily so it is (clearly) much easier for the CEOs on Wall St. to put pressure on Congress.
Ligor 3:37PM (12/10/2008)
I agree with Mike
they already screwed the cuntry up so bad, now they want to assure the coming democratic gov't will fail before they even come in since it'll take them a while to fix up things if the big 3 go down
climbingcolorado 7:50PM (12/10/2008)
Boxer: Well said. Well said.
sam Scherer 2:07PM (12/10/2008)
To all you autoblog writers who believe in these bailouts. You guys need to get real, the big 3 can't be saved. Its reported that it would cost over 100 billion for a bailout that could save them from themselves.
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Seminole 2:27PM (12/10/2008)
Sheeeet at least its less than the 700b thrown wildly into the wind for he financial sector. At least the 100b could go toward making some serious badass cars.
1970Dodge 2:27PM (12/10/2008)
"I find your lack of faith disturbing...You don't know the power of the dark side!"
david 2:39PM (12/10/2008)
An estimated 6.5M jobs directly and indirectly associated with the Auto industry will be affected. Lost pensions, lost jobs=unemployment benefits, lost health insurance=taxpayers picking up the tab, lost sales tax, lost commercial real estate taxes, forclosures on commercial and residential property, lost residential property taxes, hell even silicon valley claims the demise of the domestic auto industry will put 1/3 of them out of business. Add the potential up for all this, and I'm sure I missed much more and the bailout amounts to chump change.
Keep hoping for the demise of the domestics and sit back and watch the economic earthquake take us all down.
Big Rocket 4:12PM (12/10/2008)
@david: There are many who believe it would cost less to bail out (with a bridge loan) the Big 3, because not doing so would cause a loss of jobs so great it would far exceed the cost of the bailout. This logic has several flaws.
1. How can anyone say X is less than Y if X is unknown? Nobody knows how much it would really cost to fully bail out the Big 3 to the point where they can survive long term. They got $15 billion so far, but no one knows how much more they will be getting when there is a new administration in the White House. With that in mind, all claims of less cost to bail them out is nonsense.
2. In a similar fashion, how can anyone say X is less than Y when Y is uncertain? If GM, Ford, and/or Chrysler enter Chapter 11 protection, they can get rid of the UAW and unaffordable union labor contracts, which will allow the Big 3 to be more competitive. Changing from union to non-union jobs shouldn't be a net loss of jobs -- at least, not much of a net loss if inefficient union workers are replaced by a smaller number of efficient non-union workers. The bailout supporters would like the taxpayers to believe millions of jobs will be lost almost immediately in the case of bankruptcy, but that just isn't the case with Chapter 11 protection.
3. Here is the final problem. Our country is over $10 Trillion in debt. Which means every man, woman, and child living in this country owes about $35 thousand. Now, when our country is already deep in debt, where are we going to find the money to pay $700 billion here and $15 billion there? If we keep printing out money without the means to back them up, we will plunge our country deeper into debt, further devalue our dollar, and lead the economy into a second Great Depression.
happy_penguin 4:27PM (12/10/2008)
If you're concerned about national debt, you have a helluva lot bigger things to worry about than loans to the US auto industry. A LOT bigger.
Big Rocket 5:14PM (12/10/2008)
@penguin: Because $15 billion, plus whatever future amount the Big 3 might get from the next administration, is chump change? It is precisely that kind of attitude, spending a few billions here, a few billions there, money our country doesn't have, that contributed to a national debt of $10 Trillion. Speaking for myself, I don't feel comfortable leaving our children and grandchildren with runaway debt, not to mention the prospect of a Second Great Depression within our lifetime. And, as I mentioned before, the $15 billion will do nothing to fix Detroit's core problems, unless the Big 3 go into Chapter 11 protection to get rid of the UAW's unaffordable labor costs -- not just take-home pay, but all union legacy costs. Only then will they become leaner, meaner, competitive, and profitable.
happy_penguin 5:28PM (12/10/2008)
So dump the pensions and let the taxpayers bail them out anyway or give the new contracts which eliminate pensions forward, the time they need to bring the corporations to solvency.
Big Rocket 6:24PM (12/10/2008)
@penguin: That's just more scare tactics the UAW would like the American taxpayers to believe, as far as the pensions are concerned. Suppose GM files for Chapter 11 protection, and the former GM pensioners are now on their own. Only some of them, not all, would qualify for government assistance because of their poverty level. Even then, those who qualify would not be receiving nearly the same level of excessive pensions that are currently bankrupting GM. It's past time the Big 3 cast off the dead weight that has been dragging them down, enter Chapter 11 protection, and become the lean, mean organizations the UAW prevents them from being.
-sun 2:09PM (12/10/2008)
lol ... its like a soap opera .. and i love the captions on the photo and how they change for each announcement .... i love the republicans even more than the democrats .. everyone is worried about being the ones that solved the problem instead of just solving it ... *sigh* ..
and quite honestly my faith in big business is even lower after the bailouts to the financial companies ended up in their pockets and not "trickling " down as the bush administration asserts ...
-sun
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Polly Prissy Pants 4:02PM (12/10/2008)
"i love the captions on the photo and how they change for each announcement"
Ditto that, those are priceless. Keep 'em coming.
garlinski 2:15PM (12/10/2008)
I would really enjoy and hourly "Pop Up Photo" caption. They are hysterical. Way to go House Rep. for screwing this up.
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notYou 2:15PM (12/10/2008)
autoblog: House Republicans think their bill is superior because it doesn't make the U.S. taxpayer a direct stakeholder in the automakers, while we think it's ludicrous because there's no guarantee that investors would suddenly pour money into Detroit just because half of their risk is covered.
So then why should the taxpayers become direct stakeholders when there's no guarantee that _any_ of their risk is covered?
The point being: free market = risk vs. reward. Anything else is a scam (that usually the tax payers get screwed for).
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