By on December 10, 2008

From Politico, we have a counter-proposal on auto industry assistance by House Republicans, led by Rep John Boehner. In essence, it advocates for a pre-packaged bankruptcy with major concessions from all sides. More importantly, it suggests that instead of $15b in interim financing and a Czar to keep things in line, the government should “provide insurance, funded by the participants with a modest FDIC-like fee, which would cover up to 50% of the losses of new investment in the case of default, helping to unlock immediate private investment (not unlike debtor in possession financing). Such insurance would expire on March 31, 2009.” Hit the jump for a complete statement from Boehner and more details.

“Washington must address the challenges facing the auto industry and our entire economy not through endless taxpayer-funded bailouts that prolong workers’ pain and put taxpayers’ money at risk, but by fixing problems and removing barriers that make it harder for families to prosper. The House Republican American Automotive Reorganization and Recovery Plan protects taxpayers and helps working families by allowing the auto companies to become competitive again without nationalizing an industry that needs real reform, not another taxpayer bailout.

“Let’s be clear: our nation – and my home state of Ohio – needs a healthy auto industry that produces cars Americans want to buy and provides good-paying jobs. But during these difficult economic days, stressed-out families and taxpayers cannot afford to part with another dollar of their hard-earned money without strict assurances that they will recover these funds in short order. The Democrats’ proposal does not provide adequate assurances to ask them to take this substantial risk. Instead of laying the groundwork for the long-term viability of the auto industry, I’m concerned that this proposal asks taxpayers to further subsidize a business model that is failing to meet the needs of American workers and consumers.”

NOTE: House Republican leaders today introduced the American Automotive Reorganization and Recovery Plan to protect taxpayers and help auto workers and their families by allowing the auto companies to become competitive again. Rather than a taxpayer-funded government bailout that replaces private investment, the House GOP plan proposes that the government provide insurance, funded by the participants with a modest FDIC-like fee, which would cover up to 50 percent of the losses of new investment in the case of default, helping to unlock immediate private investment A full summary of the plan follows and is available here:

The American Automotive Reorganization and Recovery Plan

Working families throughout our country are struggling to pay their bills and facing economic anxieties not seen in America for generations. Employers are finding themselves torn between staying in business and laying off people over the holidays. Nowhere are these challenges more acute than in states that are heavily dependent on auto manufacturing. It is essential that Washington address these challenges not through taxpayer-funded bailouts that prolong working families’ pain and put taxpayers’ money at risk, but by fixing problems and removing barriers that make it harder for working families to prosper.

Washington has failed this basic test with respect to the American auto industry. Republicans want to make certain that in its response to the resulting crisis, Washington does not fail American taxpayers as well. A responsible plan should do two things: it should protect taxpayers, and it should help auto workers and their families by allowing the Big Three to become competitive again. The Democrats’ plan does neither. Congress should not be stampeded into rubber-stamping a plan that guarantees failure at the taxpayers’ expense.

The Democratic Bailout proposal has three fundamental flaws:

• The only thing crazier than trusting the same management and union officials who got the Big Three into this mess to get them out is trusting a bunch of Washington politicians and bureaucrats – the very same people who ran up a $455 billion deficit last year. American auto workers and their families deserve better.

• If no private investors believe the Big Three restructuring plans are realistic enough to support with their own money, why should we put up taxpayer money? American taxpayers deserve better.

• The Big Three restructuring plan and the Democratic proposal lack accountability. There is no guarantee that once they get taxpayer money the restructuring they promise will occur. Once the taxpayers prop them up once, there will be a big incentive to keep bailing them out – keeping the industry dependent on government aid, lashing it to the majority’s political agenda, and further denying American auto workers the security of a viable industry that is back on its feet and ready to compete. American auto workers and their families deserve better.

What We Should Be Doing: The American Automotive Reorganization and Recovery Plan

Hard Benchmarks:

On December 2, the Big Three presented to Congress their plans for restructuring. While the plans included laudable goals, too few details were provided as to how the companies will actually achieve the restructuring and the savings they have promised. In some instances new agreements to achieve the savings would not be entered into for months or perhaps years.

The Big Three must lock in the restructuring they have promised in a matter of weeks, not months or years. Congress should instead establish firm benchmarks and a tight timeline for restructuring. Such benchmarks will include for example requiring that by March 31, 2009 each company should reach agreement whereby:

• The companies’ creditors agree to a framework to reduce each company’s indebtedness by at least 1/3.

• The UAW holds to concessions already made and further:
o Concedes the elimination of Supplemental Unemployment Benefits;
o Concedes elimination of the Jobs Bank Program;
o Agrees to either reduce company retiree health care obligations or otherwise convert a portion of such obligations into equity; and
o Agrees to reduce wages and benefits to the levels paid by non-Big Three manufacturers.

A Process for Reaching Expedited Agreement, Instead of Nationalizing America’s Auto Companies

Because of the many legal and contractual hurdles to restructuring, the companies are urged to accomplish their restructuring through the use of a pre-packaged bankruptcy or another mechanism to bring all stakeholders to the table for an agreed-upon determination of their future. It is important that these stakeholders reach reasonable compromises amongst themselves. Creating a government bureaucracy or a “car czar” to arbitrarily pass judgment on the thousands of details involved with a restructuring is akin to nationalizing the auto companies.

Interim Financing: Insurance, Rather than a Taxpayer-Funded Bailout

The Big Three may need some form of interim financing as they finalize their restructuring. In normal economic times, if their restructuring plan is considered viable, such financing should be available in the private market. Because of the current credit crisis, limited assistance may be appropriate in the form of insurance, rather than a taxpayer-funded government bailout that replaces private investment. We propose that the government provide insurance, funded by the participants with a modest FDIC-like fee, which would cover up to 50% of the losses of new investment in the case of default, helping to unlock immediate private investment (not unlike debtor in possession financing). Such insurance would expire on March 31, 2009. This proposal ensures that taxpayers are protected and provides a powerful incentive for the Big Three to quickly implement their restructuring plans.

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25 Comments on “Bailout Watch 277: House Republicans Offer Alterna-Plan...”


  • avatar
    jaje

    Yay – politicians do make the smart decision at times. Only when they really need to. Prepackaged bankruptcy with Federal guarantee is the best choice to make us stronger. Had pill to swallow but D2.8 and the UAW are in these dire straights b/c of themselves.

  • avatar
    Engineer

    O-o. What? The GOP suddenly grew a backbone? Nice!

    Amazing what getting kicked in the teeth by the voters can do for the character of a political party.

    Now the only problem is that the GOP is such a minority.

    Eh, democracy, eh?

  • avatar
    dougjp

    Wow, impressive. Better this than anything else I’ve seen so far. I see a filibuster on the horizon.

  • avatar
    RetardedSparks

    “If no private investors believe the Big Three restructuring plans are realistic enough to support with their own money, why should we put up taxpayer money?”
    Private investors have ALREADY voted – stock prices down 99% in a year, credit rating below junk, and no bank willing to loan them a dollar! How much is the “modest fee”? If it doesn’t make the taxpayer whole after (inevitable) default, aren’t we on the hook for all the insurance? How can the insurance expire on March 31? Do they really expect every investor to be secure by then.
    This is as half baked as the current proposal, just a different dish.

  • avatar
    Conslaw

    The Republican plan has at least a couple fundemental flaws. The first of which brings to mind the Richard Nixon “women and children first” joke: There isn’t time. Yes, Chrysler and GM should have prepackaged their bankruptcy weeks ago, but they didn’t. It looks like it will take 90 days or so to get a restructuring together in or out of bankruptcy. Hence the March deadline in the interim package. Something like the Republican package might work for Ford.

    The second problem is that underwriting 50% of the loss with “insurance” won’t attract any capital, especially with today’s capital markets. And if it does, it doesn’t provide the upside to the taxpayers that the draft Democrat/White House plan does. How will premiums be assessed? Who pays them?

  • avatar
    RobertSD

    Well, I agree with this on a fundamental level, but they aren’t going to get lenders in there, even on a 50% guarantee. It’s just not going to happen right now. I mean, sure, you might pull in $2-4 billion for GM or Chrysler, but that’s not nearly enough to move through a good C11 on – and then that will impact suppliers, and there are no provisions for them here.

    This is complex because the credit markets aren’t lending to anyone they don’t believe will return the money some day, regardless of assurances… and while Ford may be able to convince a few, I doubt GM or Chrysler will. And then you still have the fallout of a bankruptcy (once GM stops paying supplier Y, supplier Y is done for because they are already on the brink and then that causes problems for Ford, Toyota, etc). And this plan doesn’t even think beyond the main automakers to the supplier effects of an auto company stopping payments.

    I like it because it gets private investors involved (and they are usually far more rational than people appointed by the government and at the government’s whim). But for all their bravado, claiming that we shouldn’t sink money into a troubled industry begs me to ask: where they hell were they when the financial bailout that has cost us MUCH more than a platry $15B. Couldn’t fillabuster that because it wasn’t politically expedient before the election? But now you can because you wiped up in the election?

    I also noticed how pointedly it targets the UAW. Ultimately, I think that’s why they want bankruptcy. In bankruptcy, UAW contracts are ripped up, and hard choices have to be made. But if you’re just going after the UAW because they are the bane of your existence (and have been for many years), the thirst for political revenge will cost this country billions of dollars. Still not a great plan.

    I hate politicians.

  • avatar
    Hippo

    This plan at least addresses some of the problems.

    If we are going to waste taxpayer money, then at least we deserve a small chance at success.

    The concessions need to be extracted BEFORE any actual financial commitment, and BK is the only way to force that.

    The UAW and the bond holders will never negotiate in good faith unless they are 100% convinced that there is no other option, and the equity has to be wiped out.

  • avatar
    Conslaw

    The unwritten theme behind the $15 billion plan is that we’re willing to lose this money in order to have a shot at keeping a domestic auto industry, even if it’s just for a little while. With the $15 billion, we the taxpayers buy two things.

    First, we buy time. We buy time to get a new president in office who does more than take up space, torture people and start wars he can’t finish. We make the new president responsible for implementing a long-term plan.

    Secondly, we buy control. If an automaker fails to come up with a real plan, we take over and do what’s necessary.

    The $15 billion plan is a compromise, and like all compromises, everybody walks away from the table a little unhappy.

  • avatar
    golf4me

    Wait a minute, didn’t the goverment give (force upon?) nine of the biggest banks $125b a couple of months ago. And, aren’t they complaining that said banks are not lending that money? How about a bill that forces said banks to finance part or all of the C11 restructure of the big 3 AND the cost of a merger of GM and Chryco? No new money spent. Smaller, healthier industry. Done.

  • avatar
    golf4me

    Oh, and anything that breaks the back of the UAW is a good plan.

  • avatar
    dgduris

    The “not enough time” argument is always – always – specious.

    So too is the notion that the government – especially the new, Democrat-controlled government could take over and “do what’s necessary” when the heads of the Big 1.8 fail to come up with a “real plan.” What would be necessary would be cutting union jobs and benefits. Not coming from this administration.

  • avatar
    RetardedSparks

    Hey, what about Ford? If they don’t take any money, do they stay out from under the thumb of the Feds? Would they still get the benefit of the UAW contract modifications? What about any potential suspension of franchise laws allowing them to ditch dealers?
    All last week, Mullaly said he was just there “in support” of the industry. If they really are strong enough to opt out, they could end up in a pretty sweet position…..
    Just speculating…

  • avatar
    BenFarmer

    Just a slight correction: House Republicans and some Democrats did vote down the initial bank bailout bill, and a substantial number (A majority if I recall correctly) did vote against it the second time around.

    The main problem with the Republican plan is that it puts the pain during the Christmas shopping season which will depress sales in other industries.

    The big 2.8 (or actually 1.8 because Ford isn’t playing the game)are essentially holding the Christmas shopping season hostage. Even the hearings have to be cutting consumer confidence and holiday sales.

    If the bailout initially gets defeated or passes in a form that really has teeth in terms of protecting taxpayers, I fully expect GM and Chrysler to ‘punish’ us by making a series of moves that are as damaging as possible to consumer confidence. I expect them to make moves that are designed not to maximize savings but to maximize consumer worries/pain and stock market jitters, then come back for another bailout vote. ‘See what a bankruptcy would be like.’

    I hope I’m wrong about that, but it seems to fit with the feeling of entitlement I’m sensing coming out of the auto industry. I also hope that the House and Senate would see through that strategy and make it clear that that kind of tactic will be slapped down hard, but I’m not at all sure the politics would play out that way.

  • avatar

    Meanwhile, Friedman at NYTimes has discovered A Better Place:
    our bailout of Detroit will be remembered as the equivalent of pouring billions of dollars of taxpayer money into the mail-order-catalogue business on the eve of the birth of eBay. It will be remembered as pouring billions of dollars into the CD music business on the eve of the birth of the iPod and iTunes. It will be remembered as pouring billions of dollars into a book-store chain on the eve of the birth of Amazon.com and the Kindle. It will be remembered as pouring billions of dollars into improving typewriters on the eve of the birth of the PC and the Internet.

    http://www.nytimes.com/2008/12/10/opinion/10friedman.html?_r=1&em

  • avatar
    njoneer

    Bravo. Now figure out a way to get banks to start lending money again.

  • avatar
    guyincognito

    Its much, much better than the currently offered plan. I also doubt 50% insurance is going to attract private investment, that figure probably has to go to 100%. Still, even with 100% insurance there is at least the chance that if the plan works and they don’t default, we don’t actually spend any money. Bankruptcy is the only sensible option here. While I understand the complexities and that a CH11 of this size has never been done, how does that give confidence that inventing a whole new, untested, process will work better?

  • avatar
    AG

    First and foremost: we should remember that as radical and extreme-right-wing the Republicans were when they were in the majority, they’re likely to be even farther to the right now that they are in the minority. This plan serves one purpose and one purpose only: destroy the UAW. If they were to accept the same pay and benefits as non-unionized confederates down south, in what respect are they even a union?

  • avatar
    dgduris

    Well, if the Big 1.8 go down because they cannot build cars Americans want to buy at margins that make for a viable business – as is currently the case – won’t the UAW be destroyed anyway?

  • avatar
    y2kdcar

    Stein X Leikanger :

    Meanwhile, Friedman at NYTimes has discovered A Better Place:
    our bailout of Detroit will be remembered as the equivalent of pouring billions of dollars of taxpayer money into the mail-order-catalogue business on the eve of the birth of eBay. It will be remembered as pouring billions of dollars into the CD music business on the eve of the birth of the iPod and iTunes. It will be remembered as pouring billions of dollars into a book-store chain on the eve of the birth of Amazon.com and the Kindle. It will be remembered as pouring billions of dollars into improving typewriters on the eve of the birth of the PC and the Internet.

    … or pouring billions of dollars into print newspapers like the New York Times on the eve of their death at the hands of the Internet. The Tribune Company went C11 this week and the New York Times mortgaged its headquarters building to raise working capital. How soon will the people who spilled thousands of gallons of ink opposing the Detroit Three bailout be in Washington, hands out, asking the Congress for a bailout of their own?

  • avatar
    George B

    Republican voters already have the power to severely weaken the UAW independent of congress. All they have to do is to delay the purchase of any new vehicle built by Ford, GM, or Chrysler until they go through C11 or equivalent reorganization. Who do they think buy the high profit light trucks? In the event of a Democrat bailout, Republicans consumers could still tip Ford, GM, or Chrysler toward bankruptsy by just refusing to buy. What could Prius driving Democrats do to stop this?

  • avatar
    CarnotCycle

    Republican voters already have the power to severely weaken the UAW independent of congress. All they have to do is to delay the purchase of any new vehicle built by Ford, GM, or Chrysler until they go through C11 or equivalent reorganization. Who do they think buy the high profit light trucks? In the event of a Democrat bailout, Republicans consumers could still tip Ford, GM, or Chrysler toward bankruptsy by just refusing to buy. What could Prius driving Democrats do to stop this?

    That’s a pretty good point. When you check out the traffic on the liberal coasts, there isn’t a domestic-brand car to be seen. I mentioned in an earlier post how this is somewhat of a contradiction for Democrats, because its old-school Big Labor democrats for the auto-industry vs. the Birkenstock/Nader set who have had secret dreams of GM’s demise since the Corvair.

  • avatar
    Bunter1

    George B-that’s funny.

    I must say though the surveys of hybrid buyers I’ve seen don’t show that wide of demographic spread,one in Readers Digest (via Autobytel?) actually showed a slight conservative leaning.
    The owners I’ve met don’t seem to be extreme anything.

    Still funny.

    Bunter

  • avatar
    jkross22

    I’m as passionate about this issue as you all are, but reality is that these idiots are going to get a big grant on the backs of the rest of us who didn’t buy their subpar cars. A grant that certainly if put to a vote, wouldn’t pass.

    GM and Chrysler are simply not viable companies. Too big, too much infrastructure, ridiculously generous retirement benefits, etc. More importantly, they have shown little in the ‘will to win’ department.

    Sales figures and profit margins don’t lie.

  • avatar
    CarPerson

    The press is reporting Bush and the Republications refused to go along with what they called the “Poison Pill” of agreeing to stop the lawsuits against the new tailpipe emissions or CAFE regulations. WHEW! Many were salivating on the prospect of THAT being in the loans.

    It has just been proven several million times over that the price of gas is hundreds of times more effective in reducing the transportation sector’s oil consumption than CAFE. When CAFE gets dumped in favor of $50/barrel tax, the domestics will have a greatly improved chance of long term viability.

    If Congress actually comes to the table with something other than money, a big “IF” indeed, it better be to offer scrapping CAFE, which has turned out to be voodoo math that absolutely creams full-line automakers (the U.S.) and hands millions of sales to the Imports on a silver platter.

    The U.S. automakers have evolved into providing a full product line because buyer’s wants and needs are not only quite different within the same consumer group, but also vastly different when that same buyer lives in Alaska, California, Montana, Nevada, Florida, or New York city.

    Trying to average a product line with an Aveo, Corvette, HHR, Impala, Traverse, Equinox, Suburban, and TrailBlazer, each with more than a handful of mpg-impacting options, to name just a few in the Chevy lineup, is a fool’s mission.

    Until then, the government is just rearranging the deck chairs on the Titanic.

  • avatar
    PeteMoran

    CarPerson: Why make everyone pay for more expensive fuel, especially as a business input?

    The idea of CAFE and the Energy Independence Act is to reduce the importation of oil. If you don’t do something about cutting off the manufacture of inefficient vehicles then the fleet average efficiency won’t go up.

    The US consumer has proved that they’ll keep buying big, heavy and unnecessary cars/trucks/SUVs almost regardless of the price.

    Having said that, $4/gallon sure seemed to spook a few of the posers out of their ridiculous trucks. That’s a fair bit more than $50/barrel tax at current levels however.

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