Bailout may put a car czar in the driver’s seat
Detroit, get ready for a car czar.
Legislation proposed Monday to bail out U.S. automakers calls for a presidential appointee to oversee a rescue plan starting in January.
Interpretations of the draft language vary, but experts say the individual could have tremendous influence over the future of General Motors Corp., Chrysler and, potentially, Ford Motor Co., which said Monday it would not immediately apply for federal loans but left the option open for the future.
Although the powers of the proposed position are more limited than what had been discussed when the idea came up last month, they would be, by any measure, sweeping.
“Whoever is being selected here is being given a very, very large amount of authority,” said Adam Isenberg, a partner in the bankruptcy practice at law firm Saul, Ewing, who reviewed the bill as prepared by House Democrats. The legislation, he added, provides “far more authority than a bankruptcy judge would ever have.”
The prospect of a federal official with such great reach in Detroit has already generated controversy.
“It sounds like one more way to hamstring the industry,” said Jim Hossack, vice president at consultancy Auto Pacific. “The Big Three are likely to get too little too late with too many strings attached.”
President Bush will be making the appointment. One potential candidate has emerged: attorney Kenneth Feinberg, a mediation specialist known for heading the Sept. 11 Victim Compensation Fund. “He has not been offered the position,” said Camille Biros, business manager at Feinberg’s Washington law firm. But she said he may be considered because of his “reputation in mediation.”
Feinberg is not related to Stephen A. Feinberg, founder of Cerberus Capital Management, the private-equity firm that controls Chrysler and holds a 51% stake in GMAC, the lending arm of GM.
The bill calls for giving the car czar complete access to the automakers’ books as well as the ability to veto any business transaction over $25 million. That’s a low threshold in an industry where purchase orders can run into the hundreds of millions of dollars.
Once initial financing is issued, the appointee would work with the automakers to develop long-range plans to be turned in by March 31, when more funds could be released.
But the czar would have power to give a thumbs-down to the automakers’ plans, require faster repayment of any loans and cancel any further aid. The bill gives automakers seven years to repay the principal, with 5% interest for the first five years and 9% thereafter. The carmakers must also comply with such requirements as producing more fuel-efficient vehicles, limiting executive pay and divesting any private planes they own or lease.
If the appointee is not satisfied with the long-term plans offered by the companies, he or she could submit a different plan to Congress.
Some in Congress opposed endowing such a position with vast authority. Late Monday, Sen. Carl Levin (D-Mich.) said, “A number of provisions that would have created great problems were not included, such as a czar who could dictate the operations of the companies.”
But experts said that short of being able to take control of an automaker’s board of directors, the official would have nearly unprecedented powers.
When Chrysler got $1.5 billion in federal loans in 1979, its progress was monitored by a board comprised of the chairman of the Federal Reserve, the U.S. comptroller general and the secretaries of Treasury, Transportation and Labor.
According to accounts, that board worked well with Chrysler’s leadership and did not excessively interfere in operations. Chrysler repaid its loan, with interest, in a timely fashion.
That’s the model some in the industry hope will prevail this time.
“It really doesn’t work to have an appointee dictating to companies how to conduct their business,” said Dennis Virag, president of the Automotive Consulting Group.
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