ON THE HILL
Unconvinced Congress Tables Auto Decision
Friday, November 21, 2008
With two of Detroit's Big Three automakers teetering on the brink of collapse, congressional leaders yesterday refused to advance a proposal for a federal bailout, saying auto industry executives had failed to persuade lawmakers that they would make good use of the money.
Instead, House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry M. Reid (D-Nev.) ordered General Motors, Chrysler and Ford to submit detailed proposals by Dec. 2 explaining how an emergency infusion of government cash could put them on a path to financial health.
"It is all about accountability and viability," Pelosi said at a news conference with Reid and other House and Senate leaders. "Until they show us the plan, we cannot show them the money."
With that, Congress left town for the Thanksgiving holiday. Once the companies submit their plans, hearings will be convened by the same congressional committees that earlier this week heard desperate pleas from the auto executives. If an accord can be reached on an aid package, the House and Senate could reconvene to consider it Dec. 8.
The two-week delay cut short a last-ditch effort to build support for a plan to speed $25 billion in emergency loans to the three companies, infuriating Detroit's allies on Capitol Hill. Sen. Carl M. Levin (D-Mich.) called the decision by Pelosi and Reid "risky and unnecessary," but he stopped short of saying they would be to blame if one of the companies were to fail.
The delay also startled industry analysts, who said General Motors, the largest and weakest of the firms, may not be able to hang on much longer without federal aid. Jerome York, an adviser to former GM board member Kirk Kerkorian, said in a Bloomberg Television interview that the automaker probably has weeks, not months, before it runs out of cash in the face of the steepest drop in auto sales in more than two decades.
In a painful one-two punch, the
auto industry also lost its most powerful defender in Congress yesterday, as House Democrats voted to oust Rep. John D. Dingell (D-Mich.) as chairman of the Energy and Commerce Committee. He will be replaced by Rep. Henry A. Waxman (D-Calif.), a liberal environmentalist unlikely to have much patience with industry complaints about auto emission standards.
As hope for a bailout evaporates, GM has few other options for raising money. It is unable to sell off assets, such as its Hummer division, because potential buyers are hesitant to expand during an economic downturn. And Wall Street isn't interested in investing in the troubled domestic auto industry.
Yesterday, General Motor's financial arm, GMAC Financial Services, applied to become a bank holding company, a move that could make it eligible for funds from the Treasury Department's $700 billion financial rescue package and give it access to emergency loans from the Federal Reserve's discount window. The move is intended to help GMAC improve credit so more people can buy cars, providing more revenue for its parent.
But GM also needs cash fast. If a federal bailout isn't approved by December, slumping auto sales will quickly push the firm into bankruptcy, said Dennis Virag, president of Automotive Consulting Group. A GM bankruptcy could in turn drag down the other car companies, he said, and spark a cascade of bankruptcies throughout the auto industry's chain of suppliers, which employs nearly 5 million people in all 50 states.
Virag predicted that car sales will drop by an additional 30 percent unless Congress or the Bush administration provides a quick infusion of funds.