WASHINGTON, D.C. — The question in Congress this week is whether the auto industry should get a bailout from the government, but lawmakers — including Minnesota’s congressional delegation — are sharply divided over how to do it.
Automakers say that they’re suffering under a short-term liquidity crisis prompted by the credit crunch, high gas prices and a downturn in consumer purchases. It’s a problem that, if left untreated, could be disastrous for the U.S. auto industry, they say.
Some Democrats believe that the best way to help the ailing industry get over the hump is to carve out about $25 billion in loans from the $700 billion economic recovery package passed earlier this year.
But there’s a lot of opposition to that idea from lawmakers, including Rep. Jim Oberstar, D-Minn., who said he supports a financial assistance package for the auto industry, but opposes using money from the $700 billion rescue package for that purpose.
“That legislation does not include enough safeguards for taxpayers, it would have to be modified before it could be used to bail out the big three automakers,” he said. “Congress should pass separate assistance package for the auto industry, in the spirit of and along the lines of the 1978 legislation that saved Chrysler from financial collapse. Taxpayers got warrants, hard assets of $1.10 to $1.20 for every dollars loaned to stabilize the company. That is an appropriate way to go about it, so at the end of the process the taxpayer actually makes money.”
Senate Democrats last night appeared to be abandoning the proposal to use money from the $700 billion rescue package. Instead, Republicans and the Bush administration say that cash should come from Energy Department loans intended to help auto companies retool their production plants to make more energy efficient vehicles.
Meanwhile, Democratic leaders said this afternoon that Congress will put off a vote on bailing out the auto industry until next month, and want the auto companies to present a plan showing the money will make them financially viable.
‘Tremendous risks’
As for the auto industry, it seems they don’t much care where the money comes from, just so long as they get it.
“A decision to make government assistance available makes much more sense than taking the tremendous risks to our already fragile economy that come with inaction,” said Ford Motor Company CEO Alan Mullaly in testimony for the House Financial Services Committee.
Like many of their colleagues, the Minnesota delegation is on the fence about how to deal with the issue.
Rep. Tim Walz, a Democrat, said: “Until we see details about an assistance package for the auto industry, we’re just speculating about what might be included. But I would be very hesitant about any package that does not include strong protections for the taxpayers who are being asked to foot the bill.”
Democratic Sen. Amy Klobuchar said she is still reviewing the various proposals. “I believe it’s important to do what we can to shore up our struggling national economy, preserve jobs and prevent the collapse of a major domestic industry,” she said. “The real issue is what’s the best way to do it.
For Klobuchar, the most important thing is making sure that taxpayer dollars aren’t thrown at the problem without some assurance that the money will improve the long-term solvency of the industry, she said.
Her Senate colleague, Republican Norm Coleman, has a similar worry.
“I say, ‘Show me plans for long-term viability,'” he said. Ford Motor Company, which has a plant in St. Paul, has taken steps to improve its business model by investing in greener technologies and reducing its number of production facilities, Coleman points out.
“But this isn’t a loan to Ford,” he said. “This is a loan to an entire industry.”
Republican Rep. Michele Bachmann, who did not support the first $700 billion bailout, says she’s not inclined to support any of the current plans, so long as the auto industry continues to make poor business choices.
“Taxpayers are again being asked to throw their hard-earned money behind a short-term, unproductive investment which will only prolong the companies’ failures at a cost that could be even greater later on down the road,” Bachmann said.
“I have received no assurances to date that this money will not simply be down a rabbit hole. None of us have. Plus, much of the urgency that would force the Big Three to make tough restructuring choices would be reduced if federal money is available,” she added.
Instead, she supports the idea of letting the companies restructure their finances and operations under the protection of the bankruptcy court, where they would be forced to fix many of their long-term management and labor problems without the threat of lawsuits.
Root of the problem
Meanwhile, Keith Ellison believes there’s nothing wrong with authorizing a separate $25 billion for the industry outside the $700 billion bailout.
“I stand solidly behind the auto workers in their effort to keep their jobs,” Ellison said.
But attached to any money given to the auto industry must be a plan for greater fuel efficiency, global competitiveness and a repayment plan.
“We need to get to the root of the problem and that is an uncompetitive product — not those who assemble the product,” Ellison said.
GOP Rep. John Kline and Reps. Collin Peterson and Betty McCollum, both Democrats, did not immediately respond to requests for statements. Rep. Jim Ramstad’s office said the GOP congressman has not made any statements on the proposed bailout for automakers.
Despite pleas from the Big Three, partisan differences are likely to block progress, at least during this lame-duck session.
Nevertheless, in the past 24 hours, lawmakers have bandied about an alternative. Car companies should be allowed to pre-negotiate the details of their bankruptcies. By working out details ahead of time, the bankruptcy process would be completed quickly, lessening consumer fear when it comes to buying cars, said Connecticut Senator Christopher Dodd, who is the chairman of the Banking Committee and deeply involved in the bailout debate.
“It’s an alternative worth looking at,” said Dodd. “But it takes a lot of work and lot of time.”
So, what happens if Congress cannot give the industry an assist? Experts say inaction will exacerbate the panic that started when financial institutions crumbled earlier this year. Jeffery D. Sachs, an economist and the director of Columbia University’s Earth Institute wrote in an op-ed article this week that, without a bailout, the consequences could be “catastrophic, possibly pushing our economy from recession to depression.”
“The shutdown of one company would imperil domestic production across the board, and the jobs at risk include not only the 1 million in vehicle assembly and parts but millions more that would be caught in the resulting cascade of failures,” Sachs wrote.
Lawmakers say they’re already seeing the ramifications of the auto industry’s downturn back at home.
In Ohio, where General Motors is poised to shut down a plant near Dayton, auto workers are suffering, says their senator George Voinovich, a Republican.
“They’re dealing with mortgages, car loans, education,” he said. “These are not insignificant things.”
Catharine Richert reports on developments in Congress, agriculture issues and other topics. She can be reached at crichert [at] minnpost [dot] com.topics.
What’s next after this? What other industries will ask for bailouts after those we’ve heard about so far? Are you ready to escape the craziness and secure your own financial future??? http://www.LikeSoup.com
Maybe this is another case where Congress (or Treasury) should purchase equity in the auto companies instead of lending money that won’t come back if the companies are unable to survive.
The dustup yesterday about executive arrogance (why should we help out these companies when their executives flew separate private jets, for instance) should be considered a non-issue. The issue is a failing economy and millions upon millions more workers losing their jobs.
The face of the men in the picture find me staring back; matching their similar degree of arrogance. I am a powerless observer but Wagoner doesn’t scare me – his gaze is stony and meaningless – by playing the wounded auto warrior, or car salesman raised to a higher level, whatever.
The fleshy-faced fellow behind Wagoner has his hands folded tightly..in a prayer, or a fist?
There is a casually dressed cameraman in the picture’s background. Certainly would like to know what he’s thinking.
Will Congress respond in glassy-eyed acceptance to the conclusions of the interrogating panel and concede the need for funding…will an initially hostile panel water it all down to a mere slap on the wrist and dish out more than they have already? Will jobs be saved here and accountability be part of the legal package or will these steely-eyed power-heads merely be carelessly allowed to pocket the profits and run?
“Piracy” has so many faces nationally and globally these days, so who do you trust?
I’d give a buck to the CEO that said ‘We’re OK where we’re at” when asked if he would reduce his salary to $1. His compensation last year was about $21 million.
I’m all for auto workers – and other American workers – keeping their jobs, but man, they need some new CEOs. Those 3 stooges all seem unworthy. What are the chances that not one had a clue that a little humility is much more effective than a sense of entitlement when one is asking for handouts?