Automotive Rescue Is Threatened By Impasse
Tuesday, November 18, 2008
Senate Democrats yesterday unveiled a plan to speed $25 billion in emergency loans to the imperiled automobile industry, but they acknowledged that its chances of passage are slim without a breakthrough in talks with the Bush administration.
The apparent impasse leaves automakers facing the grim possibility that a government lifeline may not appear until late January, when President-elect Barack Obama takes office. With buyers staying away from auto showrooms, Detroit's Big Three are hemorrhaging cash, and analysts fear General Motors, the weakest of the group, could run out of money by Christmas.
Yesterday, in a fresh effort to conserve funds, GM announced that it would delay by two weeks reimbursements to dealers for buyer incentives, a move that could temporarily save the company as much as $500 million. But GM's gain would be a painful loss for dealers nationwide. "This is one example of how the impact [of GM's cash crisis] is being felt throughout the country," said GM spokesman John McDonald.
If even one of the automakers seeks bankruptcy protection, executives say, the consequences would be dire for the nearly 5 million U.S. workers whose jobs are tied to the industry. Some lawmakers in both parties have expressed skepticism about a federal bailout for Detroit, though, saying they are willing to take the chance of letting an automaker fail.
Treasury Secretary Henry M. Paulson Jr. has said the Bush administration hopes to avoid that outcome, and he reiterated the point yesterday in a meeting with House Speaker Nancy Pelosi (D-Calif.) and other leading House Democrats.
"They did not think bankruptcy was a good idea," Rep. George Miller (D-Calif.) said after leaving the meeting with Paulson and Federal Reserve Chairman Ben. S. Bernanke in Pelosi's office.
Still, the two sides appeared far from a compromise. Democrats said talk of a bailout was a small part of a two-hour meeting that focused mainly on whether to use the Treasury Department's $700 billion financial rescue program to reduce the skyrocketing number of home foreclosures.
The Treasury program was created last month to shore up the U.S. banking system, but Democrats now want to use it to give automakers $25 billion in bridge loans -- money that would help the firms through the sharpest decline in auto sales in more than two decades. Under a measure introduced yesterday by Sen. Carl M. Levin (D-Mich.), the car companies and their suppliers would be able to apply for 10-year loans within days of the bill's passage, paying an interest rate of 5 percent for the first five years and 9 percent for the remaining term of the loan.
Although critics have called for top auto executives to step down in exchange for the funds, the measure would not require them to do so, nor would it create a separate entity to monitor use of the money. It would, however, prohibit bonuses for employees who earn more than $250,000 a year while the loans were outstanding and require firms to submit "detailed" plans showing how the money would "ensure the long-term financial posture of the company."
Senate leaders paired the measure with an older proposal that would extend expiring unemployment benefits for 13 weeks. A test vote could come as soon as Thursday, but Senate aides from both parties said Democrats don't have enough support to pass the auto bailout bill, which is opposed by the Bush administration.
Late yesterday, House Democrats released a similar proposal. It includes additional taxpayer protections such as ban on dividend payments to shareholders during the life of the loan, as well as a requirement that participating firms submit a plan by March for long-term restructuring.
White House press secretary Dana Perino quickly criticized the Senate proposal, saying it would "raid" the Treasury program "of funds needed to stabilize our financial system." Perino pressed Democrats instead to modify and accelerate an existing $25 billion loan program intended to help automakers develop the technology to produce more fuel-efficient vehicles.