WASHINGTON — Democratic congressional leaders agreed Monday to push a $15 billion auto-industry bailout plan that would require Detroit's Big Three to restructure and answer to an overseer appointed by the president.
The plan, which Congress is likely to consider later this week, would give the government authority over major decisions by the automakers. General Motors, Ford and Chrysler would have to report progress to Congress regularly and come up with a long-term restructuring plans by March 31.
The bailout plan was unveiled as the domestic car industry is suffering its worst sales since the early 1980s. The leading six automakers all showed month-to-month drops of more than 30 percent in November, and GM and Chrysler could face bankruptcy by the end of the year without emergency aid.
The plan, which is still being scrutinized at the White House and faces an uncertain future in Congress, would provide the companies with bridge loans from an energy program approved earlier this year. The funds were supposed to be used to help the auto companies produce more fuel-efficient vehicles, but will be diverted to the firms to help them avoid cash crises.
"Come March 31, it is our hope that there will be a viable automotive industry in our country with transparency and accountability to the taxpayer," said House Speaker Nancy Pelosi, D-Calif.
Congress expects all stakeholders involved in the bailout to make sacrifices. Labor, which already made big concessions on health and welfare benefits last year, could see promised benefits for retirees and the soon-to-retire fall further.
Bondholders would be expected to take losses — a "haircut" in industry parlance — but that would be better than having to fight for repayment in bankruptcy proceedings.
Investors in Ford and GM, who've already seen shares drop to prices of half a century ago, also are likely to be hurt. Under virtually all scenarios, a bailout would put taxpayers at the front of the line in recapturing any money lent to the companies once profits return, pushing back existing shareholders.
"We call this the barbershop," Pelosi said. "Everybody takes a haircut here."
The measure also would give the overseer authority over executive pay at the automakers. It specifically says that automakers getting the loans "may not own or lease any private passenger aircraft, or (have) any interest in such aircraft," a reference to the controversy last month when the Detroit CEOs flew to Washington in corporate jets to seek a taxpayer bailout.
Neither Pelosi nor Senate Majority Leader Harry Reid, D-Nev., was especially enthusiastic Monday about the proposal. The carmakers had sought $34 billion, but it became clear after hearings last week that the package would have a difficult time winning congressional support.
As a result, leaders from both parties and the White House spent the weekend trying to iron out a new plan.
White House Press Secretary Dana Perino said: "We've made a lot of progress in recent days to develop legislation to help automakers restructure and achieve long-term viability. We're reviewing draft legislation we received this afternoon and are continuing our discussions with Congress.
"Long-term financing must be conditioned on the principle that taxpayers should only assist automakers executing a credible plan for long-term viability. We'll continue to work with members on both sides of the aisle to achieve legislation that protects the good faith investment by taxpayers."
Pelosi said she'd push the plan, but conceded: "This is a bad choice we have to make."
Reid also struck a somber note, saying that GM, Ford and Chrysler all "teeter on the brink of collapse, due in no small part to their own ineptitude."
He saw little choice, however, saying, "It was simply the right thing to do."
The measure's future in Congress is hard to predict. During last week's hearings, lawmakers from both parties said they were wary of having the government try to manage auto companies.
"A bankruptcy may still be needed in the end," said Sen. Jeff Sessions, R-Ala., Monday. "The $15 billion, everybody knows, is not going to be enough to keep them liquid throughout the next year."
The U.S. Chamber of Commerce is among the business groups lobbying for an auto industry rescue. Failing to do so, it contends, would put hundreds and thousands of auto suppliers, and thus millions of jobs nationwide, at risk.
"The suppliers have probably been hit in some instances even harder than the automobile manufacturers in terms of their business going off the cliff here," said Bruce Josten, the Chamber's vice president of government affairs.
Falling sales for both domestic and foreign-owned U.S. carmakers have reduced production, hitting suppliers hard. Sagging vehicle sales hamper Detroit carmakers' ability to pay their suppliers on time, he said.
"That's killing those guys at the downstream end of it," Josten said. "You really get the cascade effect after you move away from the Big Three."
For Chrysler, the current rescue efforts mark the second time the government has stepped in to save it. In 1980, the Carter administration provided more than $1 billion in loan guarantees in exchange for about $2 billion in concessions from stakeholders that included management, investors, dealers and the United Auto Workers union.
This bailout would be the biggest federal aid to the auto industry since those Chrysler loan guarantees. The urgency of a fix then was nowhere near what it is today, said Jody Powell, who was President Jimmy Carter's press secretary during that rescue.
"I think the economy generally is in much worse shape now then it was then," he told McClatchy. "In 1979, we were into the second oil shock, but overall the economy was much healthier than it is today."
The lawmaker who shepherded the 1979 Chrysler bailout through Congress, former Sen. Donald Riegle, D-Mich., recalls that the carmaker was further along then on improving fuel economy than today's Big Three are.
"Chrysler at a much earlier time started to bring forward the K cars — small, fuel-efficient cars," said Riegle, now a top executive at APCO Worldwide, a public-relations firm. "They had those cars quite close to coming off the assembly line, so there was a product predicate that came at a time when there were gas shortages, so having fuel efficient cars in large numbers was seen in the national interest."
He sees more problems today.
"Every country is having major problems with its auto sector. Every company's sales are way down, and when you take a look at the overall macroeconomic picture, it's hard to see who is going to buy cars . . . How do we get people to a point where they are ready, willing and able to buy cars again?"
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