PLUG OK license plate
Will the US Increase Support to the Detroit Three?
Nov 11, 2008 (From the CalCars-News archive)
CalCars-News
This posting originally appeared at CalCars-News, our newsletter of breaking CalCars and plug-in hybrid news. View the original posting here.
Want more? Become a subscriber to CalCars-News:


Here's a summary of what's happened in the past week with what used to be called the "Big Three" -- they're no longer the largest; since Daimler and Chrysler split, now they're called the "Detroit Three."

LAST MONTH: As October car sales tumbled 20-40% compared to October 2007, and all retail sales went down 10-20%, raising the prospects that auto sales will fall further for many months, more and more analysts question US carmakers' long-term prospects. GM engaged in several weeks of merger discussions with Chrysler, then pulled back to concentrate on its immediate challenges. Automakers welcomed the $25B in loans that were passed as part of the bank bailout bill. First they asked the Energy Department to expedite its development of regulations to govern the program. Then they said $25B wouldn't be enough -- especially because the funds are not unrestricted, but rather to support the "retooling" of the auto industry to build more advanced cars. Now they seek $50B more.

LAST WEEK: House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid met with automakers last Thursday and told them any additional support was conditional on their evolving their products. Pelosi and Reid also met with the autoworkers' union, and then wrote a formal letter to Treasury Secretary Henry Paulson. (Text at http://blogs.wsj.com/­washwire/­2008/­11/­08/­pelosi-reid-letter-to-paulson-on-auto-aid/­ .) They sought carmaker eligibility for loan funds from the $700B bank fund for "temporary assistance to the auto industry" with "strong conditions on such assistance in order to protect taxpayers and maximize the potential for the industry's recovery. An automobile industry that is forward-looking and focused on ingenuity, competitiveness, and the creation of green jobs for the future is essential to its long-term viability." They also suggested limits on executive pay as well as equity stakes "to provide taxpayers a return on their investment upon the industry's recovery." Pelosi and Reid concluded with a call to "restore the preeminence of our domestic manufacturing industry so that it can emerge as a global, competitive leader in fuel efficiency and in new and path-breaking energy-efficient technologies that protect our environment."

SPEAKING IN CODE: Now when legislators, journalists and analysts call for "new" and "green" automotive technologies, they mostly refer to plug-in cars. That's the result of all the efforts by advocates -- and, of course, carmakers' announcements that PHEVs and EVs will be available globally in 2010-2012. Other solutions are less scalable, less green, or more long-term because they need new fuel delivery infrastructures or technologies. These include the relatively simple conversion of existing vehicles to be able to accept ethanol blends. Of course, if they use corn ethanol, there's little if any CO2 benefit, and we don't know when we'll get cellulosic ethanol. And, influenced by Pickens' $56 million efforts, they consider compressed natural gas, which still has the inefficiency of internal combustion, and has only 20-30% lower CO2 than gasoline.


BARACK OBAMA WEIGHS IN. At his first press conference on Friday, the President-Elect honed in on the issue, saying:

"The news coming out of the auto industry this week reminds us of the hardship it faces, hardship that goes far beyond individual auto companies to the countless suppliers, small businesses and communities throughout our nation who depend on a vibrant American auto industry. The auto industry is the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil. I would like to see the administration do everything it can to accelerate the retooling assistance that Congress has already enacted. In addition, I have made it a high priority for my transition team to work on additional policy options to help the auto industry adjust, weather the financial crisis, and succeed in producing fuel-efficient cars here in the United States of America. And I was glad to be joined today by Governor Jennifer Granholm, who obviously has great knowledge and great interest on this issue. I've asked my team to explore what we can do under current law and whether additional legislation will be needed for this purpose."
http://www.cnn.com/­2008/­POLITICS/­11/­07/­obama.conference.transcript/­

On CBS' Sunday Face the Nation, Obama's newly-named Chief of Staff Rahm Emanuel said "there are existing authorities within the government today that the administration should tap to help the auto industry." And on Monday, Obama took the occasion of his visit to the White House and his private meeting with President Bush to talk about the auto industry in addition to the financial crisis and international issues.


PROSPECTS FOR FEDERAL SUPPORT: President Bush indicated his willingness to support additional measures, but tied it to Democratic support for a controversial free-trade agreement with Colombia. (Yesterday, GM stock lost 23% of its value, as analysts questioned the company's financial position; its stock continues to fall today.) Stay tuned; meanwhile, here are some excerpts from NY Times, Detroit Free Press and Wall Street Journal reports that lay out the issues and implications (for the car industry, not for the horse-trading):


"OBAMA ASKS BUSH TO PROVIDE HELP FOR AUTOMAKERS"
The New York Times, November 11, 2008, by Jackie Calmes
http://www.nytimes.com/­2008/­11/­11/­us/­politics/­11auto.html

The struggling auto industry was thrust into the middle of a political standoff between the White House and Democrats on Monday as President-elect Barack Obama urged President Bush in a meeting at the White House to support immediate emergency aid. The Bush administration, which has presided over a major intervention in the financial industry, has balked at allowing the automakers to tap into the $700 billion bailout fund, despite warnings last week that General Motors might not survive the year. Mr. Obama and Congressional Democratic leaders say the bailout law authorizes the administration to extend assistance.

Separate from his differences with Mr. Bush, Mr. Obama has signaled to the automakers and the unions that his support for short-term aid now, and long-term assistance once he takes office, is contingent on their willingness to agree to transform their industry to make cleaner, more energy-efficient vehicles.

A week after Mr. Obama's election, and more than two months before he takes office, the steadily weakening economy and the prospect of many more job losses are testing his effort to remain aloof from the nation's business on the argument that "we only have one president at a time."

The Democratic leaders in Congress, the speaker of the House, Nancy Pelosi, and the Senate majority leader, Harry Reid, have declined to call a lame-duck session for next week, as they had hoped, without assurance that Mr. Bush would support a stimulus package.

Mr. Obama has called on the Bush administration to accelerate $25 billion in federal loans provided by a recent law specifically to help automakers retool. Late in his campaign, Mr. Obama proposed doubling that to $50 billion. But industry supporters say the automakers, squeezed both by the unavailability of credit and depressed sales, need unrestricted cash now, simply to meet payroll and other expenses.

On Friday, Mr. Obama said he would instruct his economic team, once he chooses it, to devise a long-range plan for helping the auto industry recover in a way that is part of an energy and environmental policy to reduce reliance on foreign oil and address climate change.

The major automakers -- G.M., Ford and Chrysler -- are each using up their cash at unsustainable rates. The Center for Automotive Research, which is based in Michigan and supported by the industry, released on Election Day an economic analysis of the impact of one or all of them failing. If the Big Three were to collapse, it said, that would cost at least three million jobs, counting autoworkers, suppliers and other businesses dependent on the companies, down to the hot-dog vendors and bartenders next door to their plants. The center also concluded that the cost to local, state and federal governments would reach to as much as $156.4 billion over three years in lost taxes and higher outlays for things like unemployment and health care assistance. Separately, some economists say the demise of even one of the automakers could tip the current recession toward a depression.

Organized labor is not the only interest group with influence in the Democratic Party that is weighing in as Mr. Obama plans his transition. Environmentalists are adamant that any aid be conditioned on the auto industry's dropping of its opposition to higher fuel-efficiency standards and investing more in new technology. That puts them at odds with unions, who oppose any strings, leaving it to Mr. Obama to mediate.

Both as a candidate and now as president-elect, Mr. Obama has been in contact with former Vice President Al Gore, who last year won the Nobel Peace Prize for his work on climate change. In a column published in Sunday's New York Times, Mr. Gore wrote that "we should help America's automobile industry (not only the Big Three but the innovative new start-up companies as well) to convert quickly to plug-in hybrids that can run on the renewable electricity that will be available."

Mr. Obama has said that he wants to meet with the Big Three auto executives, but advisers say no meeting is scheduled. Among his advisers who have communicated with the industry chiefs and their representatives are Jason Furman, the Obama campaign's economic policy director; John D. Podesta, the head of Mr. Obama's transition; and former Treasury Secretary Lawrence H. Summers, an Obama adviser who is under consideration to be Treasury secretary again.


GM'S OUTLOOK TUMBLES; OBAMA, BUSH TALK AID
Detroit Free Press, November 11, 2008 by Justin Hyde and Brent Snavely
http://www.freep.com/­article/­20081111/­BUSINESS01/­811110328

As Washington officials squabbled Monday over a $50-billion auto industry bailout, Wall Street cast an alarming vote on the future of General Motors Corp., driving the company's shares to their lowest value since 1949.

President-elect Barack Obama used his first post-election visit with President George W. Bush to raise the prospects of a rescue plan for the industry. Michigan's congressional delegation urged U.S. Treasury Secretary Henry Paulson to use his powers under the $700-billion financial industry bailout to provide immediate loans to automakers, a request that the Bush administration did not appear ready to grant.

That lobbying came as a key analyst slashed his estimated price for GM shares to zero, saying the company could run short of cash by December and, even with government aid, shareholders are likely to lose their investment. "Even if GM is able to secure immediate U.S. government support, we believe that GM's predicament has the potential to set in motion a sequence of events that would be bankruptcy-like," said Deutsche Bank analyst Rod Lache. GM said it was focused on cutting costs and seeking aid. GM, Ford Motor Co., Chrysler LLC and the UAW have asked for $50 billion in aid for the industry -- $25 billion for general business use and $25 billion to put toward the UAW's trust fund for retiree health care.

"It is our view that providing emergency assistance to this uniquely important industry, which is struggling to meet the challenge of a severe financial crisis that has spread far beyond Wall Street, is consistent with the authority granted to you," Michigan's lawmakers said.

Deutsche Bank's Lache said GM's U.S. cash could fall to $5 billion by December, which would not be enough to pay the supplier bills for U.S. operations that will come due in January. In lowering his rating on GM shares to "sell" from "hold," Lache said any government aid likely would come with conditions that would lower or eliminate the ownership stake of other investors, especially shareholders. Other analysts took a similar view, even if their numbers were slightly different. Barclays Capital equity analyst Brian Johnson said in a research note that GM could face a bailout similar to Chrysler's 1979 deal, which required deep cuts by unions, managers, investors and suppliers. "In any scenario, we see little value for current equity," he said.

After burning through $6.9 billion in the third quarter, GM said Friday its cash could run low by the end of this year; the company has said it needs between $11 billion and $14 billion to simply keep its operations running. It has also warned that its outside auditors could question its status as a going concern at the end of the year, which would trip several triggers in debt agreements causing at least $6 billion in loans to come due immediately.

Congressional Democrats called on the Bush administration over the weekend to use a portion of the $700-billion financial industry bailout administered by the Treasury Department to aid automakers. The administration has said the only tool it has to help the industry is the $25 billion in loans for fuel-efficient vehicles, which will be disbursed over several months. Chrysler became the first Detroit automaker to apply for a portion of the loans Monday; the company declined to release details of its request.

The Treasury Department hasn't officially responded to Saturday's letter from House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D.-Nev., but White House spokeswoman Dana Perino said Monday that the administration did not see how automakers could fit under the program. Saving financial markets "is what Congress had in mind when it passed that rescue package," Perino said. "There was not discussion of specific help to auto companies during that debate, and so Congress' intent was to help financial institutions."

Members of Congress did bring up aid for auto finance companies by boosting the market for car loans during the debate on the bailout, but did not address broader help for automakers. Perino added that the administration would listen to Congress if it decided to provide more help to automakers and suppliers. Sen. Carl Levin, D-Mich, has vowed to write an amendment for the financial bailout to include automakers and pass it as part of a lame-duck session. Pelosi has yet to say whether the House will reconvene next week, saying she would convene lawmakers only if the administration and Senate Republicans agreed to an economic stimulus. There was no such agreement Monday.


"OBAMA PRODS BUSH TO AID DETROIT: WHITE HOUSE TALK IS CORDIAL,
BUT TROUBLED AUTO MAKERS WORRY PRESIDENT'S SUCCESSOR,"
The Wall Street Journal, November 11, 2008, by Jonathan Weisman and John D. McKinnon
http://online.wsj.com/­article/­SB122633055060013799.html

President-elect Barack Obama met at the White House Monday with the man he will succeed in January, and pressed President George W. Bush to take immediate action to help stave off the collapse of the U.S. auto industry and to aid the economy more broadly.

Mr. Obama's focus on the auto industry came as fellow Democrats on Capitol Hill started moving on their own to help Detroit gain access to federal rescue funds allocated for the financial sector. Sen. Carl Levin of Michigan said Monday that he is drafting legislation, aimed for quick passage, that would free up money from the $700 billion Wall Street rescue for Detroit auto makers careening toward seeking bankruptcy protection.

Obama aides spoke with congressional leadership aides ahead of the meeting to discuss the two most pressing questions: How quickly could Washington move to assist the U.S. auto sector, and whether a lame-duck session of Congress next week could pass an economic stimulus plan, which would then be in place before Mr. Obama's inauguration.

The Bush administration continues to be reluctant to intervene. While the president-elect has called for immediate action, transition aides say he is hesitant to assert himself too boldly in the process before being sworn in as president. What Mr. Obama does not want, they say, is to be saddled with responsibility for the crisis in Detroit before he has the authority to do anything about it.

On Saturday, House Speaker Nancy Pelosi (D., Calif.) and Senate Majority Leader Harry Reid (D., Nev.) asked the administration to study whether it has the authority under current law to tap the $700 billion Wall Street bailout fund to aid Detroit, and if not, to tell Congress what action is needed. Ms. Perino signaled on Monday that the White House doesn't believe it has the authority, and won't act without further legislation. "We have moved forward with what we can do with the statutes that Congress has authorized," she said, referring to an Energy Department loan program to help Detroit make the transition to a more fuel-efficient fleet. "Congress will have a chance to meet next week, and if they decide to move forward with something additional, we will be able to listen to their ideas," Ms. Perino added.

Sen. Levin has started working to address those White House concerns. "If the Treasury Department rejects the suggestion of Pelosi and Reid, and says the language is not flexible enough, a bipartisan amendment to clarify the existing language is being prepared for consideration during the lame-duck session of Congress," the senator said in a statement.

(By the way, most analyses of the impacts of automaker bankruptcies don't mention that contract provisions agreed to last year by the autoworkers union include measures to protect workers' and retirees' pension and health benefits -- but they won't won't get set up until 2010.)


Copyright 2003-08 California Cars Initiative, an activity of the International Humanities Center | Site Map