By Lori Montgomery and Paul Kane
Washington Post Staff Writers
Wednesday, December 10, 2008
The White House and congressional Democrats yesterday reached an "agreement in concept" on a plan that would throw a government lifeline to the faltering Detroit auto industry but require the auto giants, their workers and creditors to quickly negotiate a path to profitability or face the prospect of bankruptcy.
The agreement, which is set for a vote in the House today, calls for the government to speed $15 billion in emergency loans to the car companies as soon as next week, and for President Bush to immediately name a car czar to oversee the bailout. The companies would be required by March 31 to cut costs, restructure debt and obtain concessions from labor sufficient to report a "positive net present value," according to a senior administration official, speaking on condition of anonymity because final language was still under discussion.
If the firms failed to make progress toward that goal, the agreement would require the car czar to revoke the loans and develop a new plan that could include the option of seeking Chapter 11 bankruptcy protection, the official said. If the companies could not agree on steps to guarantee their long-term survival, they would be denied additional federal assistance.
The official said the agreement would create "three very serious sticks to ensure that this is truly what it was intended to be: bridge financing for firms that have a plan and a path to become competitive," rather than becoming "the first in a number of interminable loans that these guys can get to avoid making the hard choices."
The agreement cedes to the Bush administration its central demand that the auto giants move quickly to make changes in their operations or risk losing the government cash they need to stay in business. It also ensures that the car companies would be held to a tough standard after President-elect Barack Obama takes office.
Last night, the agreement was still being drafted into legislation. But the official said "there's an agreement on the concept and the way forward, and we're hoping to accomplish that as quickly as possible."
In the House, Democratic leaders were racing to make arrangements to bring the measure to a vote. With ambivalence toward another bailout running high among the public and many rank-and-file Democrats, House leaders arranged an "issues forum" yesterday in which Democratic lawmakers were able to ask questions about the proposal.
"There's a lot of skepticism," Rep. C.A. Dutch Ruppersberger (D-Md.) said afterward. "But people realize, for our auto industry to go into bankruptcy, I don't know if the markets could stand it."
The agreement faces a less certain fate in the closely-divided Senate, where Republican support is crucial to passage. Yesterday, a growing list of Republicans voiced opposition to the measure, and the White House began working to shore up GOP support.
Some Republicans said they were annoyed that they had been excluded from the negotiations. Others raised more fundamental objections, saying an early draft of the plan didn't go far enough to compel the auto giants to make changes and ensure that taxpayers are repaid.
Sen. John Ensign (R-Nev.) said he plans to use Senate rules to block the measure, which could delay a vote until early next week. "Unless major changes are made that I can be convinced of, it would take a lot for me to move off where I am," said Ensign, who opposes the idea of investing vast powers in an individual car czar.
Senate Majority Leader Harry M. Reid (D-Nev.) acknowledged the brewing battle in remarks on the Senate floor, but vowed to press ahead, even if it means keeping senators in Washington through the weekend. "We're going to have a vote on this sometime. We can either have it sooner or we can have it later," Reid said. "We cannot let a few people stop us from doing the people's business."
Because Obama has resigned his seat, Democrats have at best a 50-to-49 edge in the Senate until new members take office next month. It was unclear yesterday whether Obama's vice president-elect, Sen. Joseph R. Biden Jr. (D-Del.), would cast a vote on the auto bill, meaning Democrats may need as many as 11 GOP votes to prevail over filibuster threats. A spokesman for Obama's pick for secretary of state, Sen. Hillary Rodham Clinton (D-N.Y.), said she would be available for the vote.
The agreement would grant General Motors, Chrysler and Ford less than half the $38 billion they had been seeking to help them survive the sharpest drop in car sales in 25 years. The money is intended to keep GM and Chrysler afloat through the end of March. Ford has said it does not expect to need federal aid immediately.
Under the proposal, the government would get warrants for equity equal to at least 20 percent of the loan it provides to each firm, and the companies would be barred from paying dividends to shareholders or bonuses to top executives. They also would be required to get rid of their corporate jets. And by March 31, they would be required to submit detailed plans for profitably producing fuel-efficient vehicles that can succeed in the marketplace.
Yesterday, Democrats bowed to the White House on a series of key demands, including that the car czar be granted little discretion over the decision to extend long-term government assistance to the companies.
Democrats also agreed to require the companies to report investments, asset sales or other transactions of $100 million or more, rather than the $25 million limit previously sought. That provision is intended to prevent the firms from using taxpayer dollars to make investments abroad, but the Bush administration argued that the lower figure would amount to "micromanaging," according to Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, whose staff was leading the talks for House Democrats. Under the legislation, the car czar would have veto power over transactions of $100 million or more.
Democrats kept a provision, opposed by the White House, that would bar the car companies from pursuing lawsuits against California and other states trying to implement tougher tailpipe emissions standards. Republicans say the move would undercut the automakers' profits, but Sens. Dianne Feinstein (D-Calif.) and Bill Nelson (D-Fla.) said yesterday in a letter to Reid that GM and Ford have laid out business plans indicating that they intend to outperform the California fuel economy standards within a few years anyway.
The administration official predicted that if the prohibition is not removed, the bailout proposal will not be approved by Congress.
Democrats also included a provision that would permit the government to take warrants in Cerberus Capital Management, the private-equity firm that owns 80 percent of Chrysler, rather than Chrysler itself, according to a senior congressional aide. The White House balked at that idea, congressional aides said, but even some Republicans are troubled by the possibility that Cerberus could profit from the bailout.
Yesterday, Sen. Charles E. Grassley (R-Iowa) said taxpayers should not pour cash into Chrysler if Cerberus was unwilling to do so. Grassley also objected to an unrelated provision in the developing measure that would enable transit agencies, such as the Washington area Metro, to continue benefiting from a financial arrangement that amounts to a tax shelter for foreign institutions.
"Taken together, these issues are a one-two punch. They insult the taxpayer by propping up tax evasion, and they insult every American feeling the brunt of the economic crisis by putting tax dollars on the line where private equity investors refuse to put any of their own money at risk," Grassley said in a statement.
In a statement, Cerberus said that it had "worked tirelessly to assist Chrysler" and would "continue to provide Congress with full transparency as to its financials."