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A government-run auto industry?

The $15 billion draft bailout comes with strict conditions and immense federal oversight.

By Staff writer of The Christian Science Monitor / December 10, 2008

Auto workers unite: Retired GM worker Frank Hammer (l.), former president of UAW Local 235 Wendy Thompson (c.), and current president Bill Alfred urged passage of the auto bailout at a press conference in Washington Monday.

Larry Downing/Reuters

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The proposed $15 billion rescue plan that drew lawmakers back to Capitol Hill this week gives Washington a strong hand in shaping the future of the US auto industry.

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In sharp contrast to the relatively lax terms of the recent $700 billion bailout for the financial services industry, the auto rescue plan sets up a level of government oversight and control not seen since World War II.

The draft plan Democratic leaders sent to the White House this week sets up a two-stage process loosely tied to the timetable of the outgoing and incoming presidential administrations.

It allows the Bush administration to launch the rescue effort, but leaves key decisions about the scale and scope of the overhaul to the incoming Obama administration.

While the plan allows cash to begin flowing to struggling auto companies as early as next week, a long-term restructuring, including any sacrifices to be made by various stakeholders, is put off until March 31.

At the heart of the overhaul is a controlling role for a presidential appointee, quickly dubbed "car czar." This position – which is not expected to require Senate confirmation – is tasked with authorizing bridge loans and setting benchmarks for measuring progress.

In exchange for bridge loans, the auto industry would give government an ownership stake, or warrants for company stock, and control over the terms of retrenchment.

In a bid to deflect criticism that automakers will keep coming back for new loans, Democratic leaders negotiating the plan with the White House say Congress will insist the industry demonstrate accountability and viability.

"Unless the restructuring that is called for in this legislation and the goal of viability is achieved by March 31, there is no justification for spending more taxpayer dollars," said House Speaker Nancy Pelosi in a briefing announcing the deal on Monday. Votes in the House and Senate are expected by the end of the week.

Debate over fuel conditions

But even before the final legislation takes shape, the debate over an auto rescue plan is already shifting the terms of longstanding environmental debates, especially over whether US auto manufacturers should be required to meet higher state fuel-economy standards.

"General Motors and Chrysler have said over and over in court that they can't make these standards work and stay in business," says Boston attorney Matthew Pawa, who represents environmental groups in lawsuits against auto companies.

Yet, in making their case for a bailout to Congress last week, both GM and Ford Motor Co. submitted plans that claim their companies will meet such standards.

"Now that Detroit is coming to Capitol Hill for money, there's a huge opening for Congress to require that they meet California's greenhouse-gas standards by enacting a one-sentence law that would effectively rule out these lawsuits," Mr. Pawa adds.