Congress, having worked through the weekend, delivered a bill on Monday, Dec. 8, to the White House that is designed to bail out the ailing U.S. auto industry with $15 billion in loans. Despite lingering objections by the Bush Administration and Congressional Republicans, it looks as though the aid package will pass.
Speaker of the House Nancy Pelosi (D-Calif.) agreed over the weekend to tap a $25 billion loan program from the Energy Dept. that was meant to help automakers and suppliers retool factories to build greener vehicles. The White House said it would not consider approving any other source of funds, such as the $700 billion Wall Street bailout fund, a measure favored by Democrats.
The primary sticking point for the White House and Republicans is that there is no clear-cut language in the bill requiring the automakers to restructure their enormous debt before they take on new debt to taxpayers. "Once bond holders see that the government is in this, they will have no incentive to write down the value of the debt they hold," said Senator Bob Corker (R-Tenn.), a member of the Senate Banking Committee who has been influential during the negotiations despite his freshman status. "These companies cannot be restructured for success without a complete restructuring of their debt and labor and retiree obligations, and the debt is the biggest issue," said Corker, who added, "I wanted to see more teeth in the bill."Unions Looking for Board Seat
General Motors (GM), for example, already has $42 billion in secured and unsecured debt, plus it owes the United Auto Workers $21 billion in future payments to a fund meant to pay health-care benefits for workers and retirees. Corker and other analysts have recommended bond holders take a writedown of as much as 20% on the face value of the debt, and accept a swap of stock for another 50% of the bonds' value. They are also encouraging the union to take equity for half the future health-care payments.
Such moves would make the union, the bond holders, and the government the largest owners of GM. To that end, the UAW is, according to congressional aides, looking for a seat on GM's board as part of the government-supervised overhaul and oversight of the companies.
Representative Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said Monday there is some negotiating to do on final language, but that he is confident that the framework for a vote this week is in place.Welcome to the "Barber Shop"
General Motors shares rose by 21%, while Ford Motor (F) shares climbed 24% on the news. Chrysler is private and majority-owned by private equity firm Cerberus Capital Management.
Ford's balance sheet is in better shape, though. It has said it will not be seeking a short-term bridge loan.
Pelosi said Monday that she feels the bill will be successful in bringing stakeholders to the table to make sacrifices, though there are few specifics spelled out in the draft bill. "I call this the barber shop," said Pelosi. "Everyone is going to get a haircut—management, bond holders, labor, dealers." The term "haircut" describes when stakeholders agree to take less than what they are owed to avoid a Chapter 11 bankruptcy in which they might end up with nothing.
The bill, expected to be voted on by Wednesday, Dec. 10—if the White House and Republicans, whose votes are needed, can hammer out a compromise on the language—puts many limits on how the automakers can operate as long as they remain indebted to the taxpayer.