Strings almost certain to be attached to a Detroit bailout
With pressure rising for the government to save U.S. automakers from the financial junkyard, the question is fast becoming: Should General Motors, Ford and Chrysler simply get infusions of tax dollars? Or, in exchange for the billions, should they be forced to accept sweeping changes that critics say are necessary for their competitiveness and survival?
Environmentalists want government mandates to shift Detroit’s output to more fuel-efficient, lower-polluting vehicles. They also want the automakers to drop legal challenges to California’s new vehicle emission standards.
“These chuckleheads got into this problem because they’re refusing to make greener, more efficient vehicles, which is exactly what the California standards require,” said David Bookbinder, the Sierra Club’s chief climate counsel, who was drafting wording Thursday for legislation that that would force the automakers to abandon their lawsuits.
Other advocates are seeking new leadership in corporate boardrooms and executive suites, plus commitments to more competitive products.
Saving companies that have been poorly run is a waste of time and money, some critics say.
“It’s time for new management and stringent conditions,” said Rep. Jim Cooper (D-Tenn.), a member of the Blue Dogs, a group of fiscally conservative congressional Democrats. “It’s Uncle Sam. It’s not Uncle Sucker.”
Democratic lawmakers have said they want “strong conditions” on any assistance to “maximize the potential for the industry’s recovery.” But they have provided few specifics as they craft a $25-billion emergency loan package. The money would come from the $700-billion financial rescue fund already passed by Congress, and would be in addition to $25 billion in loans approved this fall -- but not yet available -- to help automakers retool their factories to produce more energy-efficient vehicles.
House Financial Services Committee Chairman Barney Frank (D-Mass.), who is drafting the House legislation, will not include specific conditions beyond the now-standard limits on executive compensation and severance packages, spokesman Steve Adamske said. But the Senate may include some definitive requirements in its version.
Sen. Christopher J. Dodd (D-Conn.) suggested Thursday that Congress wait until after Barack Obama is sworn in as president in January to provide further help to the carmakers. “Right now, I don’t think there are the votes,” he said. But a spokesman for Senate Majority Leader Harry Reid (D-Nev.) said Reid would press ahead with the still-unwritten measure next week, when the heads of the Big Three U.S. automakers are scheduled to testify before Congress.
Industry supporters say adding tough conditions to aid could hamstring automakers further and put as many as 3 million jobs in jeopardy.
“The matter at hand is not the fuel efficiency of an automobile. It’s that the consumer just doesn’t want to buy any automobile right now,” said Wade Newton of the Alliance of Automobile Manufacturers, which represents the Big Three, Toyota and some German carmakers.
Rebecca Lindland, an analyst with consulting firm IHS Global Insight, said adding conditions to an automaker bailout is “like saying that you’re only allowed to use organic medicine. You need to use the medicine that’s going to make you healthy.”
One thing is clear: Any major overhaul of the industry is likely to stir political trouble in the short term and cost jobs in the long term. Congressional leaders are preparing for a showdown with the Bush administration, which has been reluctant to extend aid beyond the financial sector.
Key Republicans are demanding to know how Detroit would fix its problems if it received more government aid. “Why have the Democratic leaders of Congress been willing to provide this money without insisting that the companies receiving these federal dollars demonstrate to Congress and to taxpayers that they have a credible plan to strengthen their financial health?” House Minority Leader John A. Boehner (R-Ohio) said Thursday.
With Obama and other Democratic leaders talking about the need for U.S. automakers to produce more energy-efficient cars, the industry is bracing for a fight. As one Detroit columnist recently wrote, a bailout probably “will come with more strings than a loan from Tony Soprano.”
General Motors Corp.’s financial condition is so dire that it says it needs federal help even before Obama takes office. Last week, GM reported a $2.5-billion loss for the third quarter and said it could run out of cash in the first half of 2009.
GM Chief Executive Rick Wagoner recently told Automotive News that in return for federal aid he was willing to accept limits on executive pay, offer the government preferred stock in the company and speed up the introduction of fuel-efficient vehicles.
Detroit has made a slew of mistakes over the years, analysts say, among them falling behind Japanese automakers in hybrid technology and not developing flexible assembly plants that could, when gas prices rose, quickly shift from producing gas-guzzling sport utility vehicles to smaller, fuel-efficient cars.
But now is not the time to punish the Big Three for past sins, said Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Mich.
“I’m upset with the thought of the taxpayers having to pony up to save an industry that has made mistake after mistake,” he said. “But then I look at the dire consequences of the collapse of an entire industry and I need to swallow hard and say, ‘Let’s get it done.’ ”
Energy legislation passed last year already mandates the most significant changes in vehicle fuel-economy standards in decades -- a 40% increase by 2020, for a fleet-wide average of 35 miles per gallon. Rep. Fred Upton (R-Mich.) said U.S. automakers were starting to produce more fuel-efficient cars, so adding such conditions to aid was unnecessary.
“They built the cars that consumers wanted,” he said of the demand in the 1990s and early 2000s for SUVs and pickups. “They have to have this access to capital to continue to build the cars that consumers want, which are not the cars of yesteryear.”
But aside from lawmakers from the Midwest, which is home to many auto factories and suppliers, a significant faction on Capitol Hill is skeptical Detroit can change on its own.
“I think there have to be some conditions attached to it,” Sen. Charles E. Schumer (D-N.Y.) said of automaker assistance. “One is so that we have an assurance they’re not going to come back and ask for more money six months from now, that it will actually improve their conditions in the long run.”
Former Michigan Gov. James Blanchard helped negotiate the 1980 federal bailout of Chrysler while serving in Congress. He said he expected lawmakers to include conditions similar to those that were part of that $1.2-billion deal. The federal government eventually made a profit of about $311 million from the stock options it received from Chrysler.
“The worst you could say is we bought them 29 years of life,” Blanchard said of the Chrysler bailout. “The best you could say was it was a wildly successful piece of legislation that saved thousands and thousands of jobs.”
But some lawmakers are wary of extending government aid to automakers at all.
“I am at a loss to see how bailing out the auto industry at all relates to the crisis in our capital and credit markets,” Rep. Eric Cantor (R-Va.) said. “I don’t know if it’s the best idea to have Congress try to choose what kind of cars Detroit should make.”
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