Automakers bailout details starting to take shape
Posted by sanityinjection on December 8, 2008
It sounds like the White House and Democratic leaders in Congress are getting close to agreement on the outlines of a compromise measure to bailout the Detroit automakers. Some of the details reflect concerns that have been raised on this blog as well as by legislators during the recent hearings.
The first step would be an emergency diversion from the earlier $25 billion loan package that was granted to the automakers months ago. That money was supposed to be invested in converting factories to make fuel-efficient vehicles. Under the new plan, up to half of this money would be used instead as emergency loans to the automakers available for more broad usage. This was the White House’s preferred approach all along, and it reflects the essential nature of the compromise: Democrats gave in on this in exchange for the White House’s agreement to the rest of the plan.
The second part of the package would be additional loans available to the carmakers on December 15 (no figure attached to this yet.) The Bush White House would then appoint a person or board which would write guidelines that the automakers must follow in restructuring their businesses to become viable in the long-term. The automakers would have from January 1 (when the guidelines are published) to February 15 to show sufficient progress in implementing the guidelines. If they failed to do so, in the judgment of the overseeing person (either the same person who wrote the guidelines, or whoever President Obama might appoint in their place), then the loans would be revoked and the automakers would have no choice but to file for bankruptcy.
The agreement would also require the automakers to limit executive pay, cease paying dividends, share a percentage of future profits with the government, and most importantly, guarantee that the government would be reimbursed before any other shareholders. It’s not clear yet whether the automakers would be required to replace their CEOs, though at least one Senator is calling for the head of GM to resign as a condition of any deal.
I am still not convinced that this bailout is really necessary. However, it does sound like the Administration and the Democrats are cooperating to find compromises, and including the necessary protections for the taxpayers’ money. If everything I’ve described above ends up in the bill, I can live with it. (The issue of the CEOs I think is a red herring – if they stay, they’re the ones that will have to implement the changes, or they’ll be cashiered anyway in a couple of months.) The question is whether the automakers will agree to it, though they may have little choice.
I have to ask myself though: why is it that the foreign car companies that build cars here, such as Toyota and Nissan, which operate under the same legal environment and regulations as Detroit, have performed so much better? It seems like bad management, rather than a bad economy, is what we are really bailing out here.