Detroit

Free Detroit Newsletter!
Discuss in my Forum

What are the Various Auto-Industry Bailout Proposals?

Filed In:

Question: What are the Various Auto-Industry Bailout Proposals?

As bankruptcy looms, the big-three auto companies look to the federal government for rescue. What are the various plans being considered and how is the debate about a plan playing out?

Answer:

Original Stance:

Democrats: Congressional Democrats originally proposed that the $25 billion requested by the big-three auto companies be carved out of the Troubled Asset Relief Program (TARP), part of the $700-billion, financial-rescue fund otherwise known as the Emergency Economic Stabilization Act of 2008. They argue that the Treasury already has the authority to allocate the funds to the auto companies under the act. Democrats do not, however, have enough votes to require the Treasury to do so.
Republicans: The GOP and Whitehouse support the use of the $25 billion already allocated to the auto companies earlier in the year as part of the fuel-efficiency loan program. The Energy Department loan is earmarked to retool factories for the production of fuel-efficient cars. Democrats, however, are generally against the use of these funds for short-terms needs.

Alternatives:

Bi-Partisan Alternative: Meanwhile, four senators from auto-industry states, both Republican and Democrat, came up with their own plan wherein the $25 billion Energy Department loan could be used short term. The plan included taxpayer protections and would require the fund be replenished for its original, intended use as the big-three companies recovered.
President-Elect Obama proposed a car czar (or board) to oversee the use of rescue funds and insure an effective recovery strategy.

The Debate Continues:

Second Chance: Given the lack of necessary votes to require the use of TARP funds for a bailout, Congress sent the automakers back to the drawing board; GM, Ford and Chrysler were told to come back in early December, 2008 with a strategic plan for future financial viability.
Lowered Expectations: As action stalled the second week of December, Democrats and the Bush administration, concerned that bankruptcy of the big-three auto companies would be disastrous for the economy, pushed a $14 billion bill through the House. The $14 billion would be available for bridge loans and would come from the $25 billion Energy Department loan allocated to the car companies earlier this year for factory retooling. (The bill authorized Congress to replenish the fund for its intended use.)

The $14 billion represented the amount of the funds available for emergency loans. It was intended to bridge the operating-expenses gap of the big three through March 31st, giving the companies time to come up with restructuring plans and President-Elect Obama time to take action after taking office in January.

The plan included an appointment of a car czar by President Bush to oversee the use of the loan funds and restructuring process. The companies would each be required to submit a plan for restructuring, including demonstrated concessions from autoworkers and creditors, by March 31st before any further help would be considered. The Czar, referred to as the "President's Designee" in the bill, would have had the power to accelerate repayment of the loans and force the companies into bankruptcy if they were not able to meet the loan conditions and/or come up with restructuring plans sufficient to insure viability. In return for the loans, the government would receive shares in the companies equal to 20% of the money borrowed and require taxpayers be repaid before any of the other creditors.

Note: The bill included a section prohibiting the companies from leasing or owning a private jet.
Senate Opposition: Republican opposition in the Senate killed the bill. Republican Senators conditioned their approval on huge concessions from autoworkers.
President Bush to the Rescue: The White House and Treasury announced that $14 billion in emergency bridge loans would be made available from TARP funds (as initially requested by Democrats). The President ultimately delayed the bailout, however, as an orderly bankruptcy was considered. When the circumstances proved too urgent, Bush unveiled the bailout plan with TARP funds on 12/19/08.