Citing the risk of massive job loss, the House voted Wednesday to loan US automakers $14 billion in return for a direct government hand in restructuring the ailing industry. But the biggest hurdle to clearing the bailout bill lies ahead in the US Senate, where the 60 votes needed to avoid a filibuster and pass the bill are in doubt.
Although the legislation includes protections for taxpayers and the White House has signed off on it, many Senate Republicans say they're not convinced that the loans will be repaid or that the plan will produce a more viable domestic auto industry.
“People realize this is an incredibly weak bill. It’s the product of an administration that wants to kick the can down the road and let someone else deal with it, and it has minimal, very minimal, support in our caucus,” said Sen. Bob Corker (R) of Tennessee, after a GOP caucus meeting on the bailout on Wednesday.
While some Republican lawmakers insist that the bill produces too much government intervention in the economy, others caution that it may not provide enough.
“I’m really skeptical that the federal government can appoint somebody who can do a better job of running these businesses than the board of directors and the management of these car companies, but let’s say they can,” says Sen. John Cornyn (R) of Texas. “They still need to have the appropriate powers to restructure the companies in a way to make them competitive and viable in the long run. I don’t think that power and authority have been given.”
The House bill, which passed on a 237-to-170 vote, allows US auto companies to tap bridge loans as early as next week.Over the longer term, it sets up a federal administrator, dubbed a “car czar,” to preside over bargaining among stakeholders - auto companies, unions, suppliers, dealers, and other creditors - on how to cut costs and restructure the industry to be more competitive.
If the parties are not able to come together over a restructuring plan by March 31, then Washington can require immediate repayment of the loan.
“The taxpayers get a return on their investment or are the first in line to be repaid,” said Speaker Nancy Pelosi in a floor speech just before the vote.
As a safeguard to taxpayers, the legislation provides that the government be given nonvoting shares in company stock to ensure that taxpayers benefit from any future growth. Lawmakers also added a requirement that taxpayers be repaid first, even if the company enters bankruptcy.
Companies accepting bridge loans would be barred from paying dividends or bonuses or “golden parachutes” for highly paid employees for the duration of the loan. The bill also mandates the sale of corporate jets.
In a bid to ensure that car companies do not use taxpayer loans to shift more production overseas, the bill also requires management to notify and allow the car czar to disapprove of any asset sale, investment, contract, or commitment of more than $100 million, up from $25 million in the first draft of the bill.
After negotiation with the White House, Democrats dropped a measure that would have banned automakers accepting financial assistance from supporting legal challenges to state laws that impose higher greenhouse gas emission standards than those in federal law.
But the key to the plan is the prospect that Washington can use loans to leverage changes across the domestic auto industry, especially a new commitment to innovation and efficiency.
“Green is gold. Making a commitment to innovation, fuel economy, and better emission standards makes the auto industry in our country more competitive. People will want to buy their cars,” Speaker Pelosi added.
Republican lawmakers opposing the bill insist that $14 billion isn’t enough to leverage those changes.
“This is only a down payment. We had testimony last week by one noted economist [that] it’d be $125 billion. Other people say more,” said Sen. Richard Shelby (R) of Alabama, the top Republican on the Senate Banking, Housing, and Urban Affairs Committee, at a briefing on Wednesday. “Unless Chrysler, Ford, and General Motors become lean and innovative and competitive in the marketplace, this is only delaying their funeral.”
The banking panel released its version of the bill Wednesday, but at time of writing Senate majority leader Harry Reid had not scheduled a vote on the measure.
“This legislation will provide solutions to stabilize our domestic automobile industry so that our economy will not suffer a devastating blow and so that millions of American workers do not find themselves out of a job,” said Sen. Christopher Dodd (D) of Connecticut, who chairs the banking panel.
But the bill faces strong headwinds. Besides many Senate Republicans, most Americans oppose a bailout for US automakers, according to recent polls.
Public opposition was strong, too, to a bailout for Wall Street, when the Senate voted a $700 billion rescue package for the financial services industry on Oct. 1. That law, which passed 74 to 25, was backed by 39 Republicans and 34 Democrats.
But GOP leaders see a difference between bailing out the financial industry then and helping automakers now. The financial system - or credit - is the heart the economy, and without it the whole system breaks down.
“I voted for a financial rescue package that I thought was essential to keep the country functioning,” said Senate Republican leader Mitch McConnell after the caucus meeting on Wednesday. “I was convinced … that it was a once-in-100-years crisis…. That, in my view, is not a precedent for what we’re dealing with this week or may be dealing with in the future.”
GOP lawmakers who support the bill say their colleagues don’t recognize what a blow the bankruptcy of even one of the Detroit automakers would be to the US economy.
“There needs to be a strong hammer and nails to nail down a positive plan for the auto companies to get out of the situation they’re in and get onto the road to profitability,” says Sen. Christopher Bond (R) of Missouri, who co-chairs the Senate Auto Caucus. “We ought to stay here until we get this done.”