Obama Ties Automaker Rescue to Regulation

Chrysler CEO Robert Nardelli said
Chrysler CEO Robert Nardelli said "it would be very difficult to make it through this unprecedented downturn" without help. (By Lauren Victoria Burke -- Associated Press)
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By Kendra Marr and Michael Shear
Washington Post Staff Writers
Friday, November 14, 2008

Top advisers to President-elect Barack Obama are helping to draft an auto industry rescue plan that would bring new government oversight, including the possibility of an auto czar who could ensure the money was being used wisely.

Aides said Obama is also open to an oversight board that would perform the same function as one individual. The proposals come as the estimates of the cost to fix Detroit's three largest automakers continue to mount.

"Certainly he wouldn't believe in it being a blank check," said an Obama adviser, who spoke on condition of anonymity due to not being authorized to speak publicly on the topic. "He wants oversight to be making sure the auto companies have figured out how to become viable, ongoing concerns."

Any plan, however, is likely to face an uphill battle in the Senate, where Republicans control 49 seats until the new Congress convenes in January.

"Right now, I don't think there are the votes. I don't know of a single Republican who's willing to support" the auto bailout, Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, said yesterday. While Dodd said he supports a bailout, he cautioned against "bringing up a proposition that might fail" and suggested that Congress wait until Obama takes office.

A few months ago, a $25 billion loan package to boost Detroit's production of energy-efficient vehicles seemed sufficient to help automakers and suppliers get over a rough patch and steer the industry towards a greener future. The legislation was rushed through Congress. The Energy Department wrote the rules of the program in half of the time it was allotted.

But since then, the economy has worsened, pulling auto sales to their lowest levels in more than two decades. Like a clunker running on fumes, the industry's latest sputters have signaled a need for more expensive repairs. Not only have prominent Democrats proposed lending another $25 billion to help companies meet their day-to-day expenses, but the United Auto Workers is talking about its own $25 billion injection for a labor-run trust that would take over health-care costs from the auto companies in 2010.

An increasing number of analysts say the cost of reviving the American auto industry is not likely to stop with the current plans. Citigroup analyst Itay Michaeli said a General Motors bailout alone would exceed $21 billion. J.P. Morgan Chase's Himanshu Patel and Barclays Capital's Brian A. Johnson both speculated that federal assistance for GM could easily reach $30 billion.

At the pace GM and Ford are burning through their cash -- at a rate of least $4.9 billion a month -- $25 billion won't last much longer than five months. And that's not taking into account what Chrysler might need.

The current situation is "unsustainable," Ken W. Cole, a GM vice president, wrote in a letter sent Monday to members of Congress. The funds for energy-efficient vehicles, "while welcome by the industry, are not enough and will arrive too late to provide the urgent assistance we need," he wrote. Cole said domestic automakers need $25 billion more to address the cost of materials, wages, capital spending for machinery and equipment, upgrading infrastructure, technology research and new vehicle development.

Speaking at a conference in California yesterday, Chrysler chief executive Robert Nardelli said "it would be very difficult to make it through this unprecedented downturn" without help. Cerberus Capital Management, which owns Chrysler, would forfeit profit on a sale if it receives federal aid, according to Nardelli's spokeswoman.

How long the government aid might last largely hinges on two factors: the economy and consumer confidence, analysts said. Many estimated that consumers won't be shopping for cars until 2010 at the earliest.

Millions of jobs are at stake if any of Detroit's three largest automakers file for bankruptcy. The failure of a collapsed manufacturer could ripple through the supply chain -- from auto parts suppliers to dealerships -- and even affect Japanese carmakers.

Detroit's auto companies are striving to make it to 2010, when their costs for health-care benefits will shift to a UAW trust.

"Between here and 2010, it's a very rough road," said Harley Shaiken, a labor relations professor at the University of California at Berkeley.

The Bush administration strongly opposes Democratic plans to direct money to automakers from the Treasury Department's $700 billion financial rescue program. But Treasury Secretary Henry M. Paulson Jr. made clear yesterday that the administration does not want any of the Detroit automakers to fail.

"I understand how important the automakers are to this country. And I understand a bankruptcy," Paulson said in an interview on Bloomberg TV. "A failure in that industry wouldn't be a good thing. It's something we should avoid."

Sen. Charles E. Grassley (R-Iowa) told Detroit's top executives in a letter yesterday to follow the example of former Chrysler chief executive Lee Iacocca, who slashed his salary to $1 after Chrysler's federal bailout in 1979.

"Many men and women are pinching pennies just to get by, making sacrifices and changing their lifestyles to stay in their homes, send their children to school, and grow their retirement savings," Grassley wrote. "I think it's highly appropriate, if not absolutely necessary, that you do the same."

Obama believes action cannot wait until his administration begins, his aide said.

"The options that you have in dealing with these problems get worse and worse. The sooner you address it, the more time you have to bring the parties to the table," the adviser said. "He really feels the sooner you act, the better."

Staff writer Lori Montgomery and staff researcher Julie Tate contributed to this report.


© 2008 The Washington Post Company

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