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3:00pm: And mercifully, it is finally over. After nearly six hours in the Senate yesterday, and another five and a half hours in the House today, the automaker grilling is completed. Now all that is left is for someone to pay them for their time. But will they get their money? There are still obstacles, specifically where the cash will come from. But Rep. Frank stated near the end he saw a "pretty broad consensus here that something should be done." As Frank notes, that is "not a guarantee of success, but it is a step forward." He hopes to come up with a bill "nobody likes," figuring that if someone likes all of it the bill will not pass. But one that will ultimately be approved by a consensus. He said "no one can be certain, but I have more optimism than before" that something will get done. Now all that is left for the auto execs is to scrounge up enough cash to pay the tolls on the Pennsylvania Turnpike on their way home.
2:56pm: Rep. Jackie Speier (D-Calif.), who argued against a
bailout because she believes voters will be angered by it, was just
rebuked by Columbia's Professor Sachs. Think they are mad now? He asks.
Just wait and see how mad they will be if unemployment doubles
overnight after the auto industry fails.
"This is not a favor to the automakers, this is a favor for the American people," Sachs said. Speier is also in the "Cerberus = bad" camp, saying they are ruining Mervyns (a department store chain they own) and saying "I don't understand why we should be bailing them out." 2:37pm: Rep. Brad Sherman (D-Calif.) echoes another popular theme from yesterday that one might expect to see in final legislation: A built in haircut for debt holders. Sherman notes that GM bonds today are trading at 15 cents on the dollar, and sees little reason they should be made whole thanks to government intervention unless the feds get paid back themselves. One might predict an auto czar will be mandated to work out concessions with bondholders, perhaps giving bondholders 30 cents on their dollar (thereby, the thinking goes, doubling their investment) while shrinking the auto debt loads. In Congressional thinking, that is called a win-win. 2:23pm: The hearing winds on, without much of the bluster of the earlier panel and (unfortunately) without the same time discipline that was imposed this morning. Trying to wrap things up, perhaps it is best to quote Rep. Al Green (D-Texas, not the singer), who in urging his colleagues to support the bailout notes that the automakers have done everything that was asked by them by lawmakers. "They have done everything except roll over and play dead," Green said. "And I suspect if we had asked them to roll over and play dead, someone would have been willing to do it." Shame Bob Nardelli has already left. The image would be priceless. 1:52pm: Putting an exclamation mark on the potential consequences of Congressional inaction, Chrysler has reportedly retained Jones Day as bankruptcy counsel in the event of a filing. As we said earlier today at this point the safest bet is that all three automakers get some sort of assistance, but if there is one that could be passed over Chrysler, with its Cerberus ownership, appears the most likely target. Better safe than sorry, perhaps. 1:28pm: Columbia University professor Jeffrey D. Sachs supports the auto contention that bankruptcy is not a good option, but was critical of Ben Bernacke and Hank Paulson for their reluctance to join the discussion. "The Fed lent against Bear Stearns assets. The Fed lent against Citi assets. The Fed can lend against GM collateral," Sachs said. "This is a big mistake that is being made right now." Above all, Sachs said, the government must do something. "I don't want to read that Congress was not able to come up with $25 billion when we have trillions of dollars at stake." 1:18pm: Restructuring legend Felix Rohatyn, speaking on the second panel before the committee, urged them to act quickly. Thinking back on his role saving New York City from bankruptcy three decades ago, Rohatyn said that he believes if lawmakers do not act soon there might not be time. "Pick your ground and go, because you are going to run out of time," he said. 12:52pm: Rep. Thaddeus McCotter (R-Mich.), an impassioned critic of the TARP who famously said that "every American demands and deserves an accounting before Congress by the CEOs of the financial institutions that have already received over $300 billion in bailout money from taxpayers," is (not surprisingly) more open to an auto bailout. Sensing that the debate over the bailout centers not on whether to give the companies aid, but where it should come from, McCotter has proposed that Congress take half of the $34 billion the auto companies need from the TARP, as Democrats prefer, and the other half from a $25 billion loan package already approved for development of more fuel-efficient technologies, as some Republicans insist. That is it for the execs. Rep. Frank sent them off in a hurry, yelling to the gallery that all conversations should be taken outside so the second panel can be seated. Maybe Frank has to hit the road and get out of Washington too? 12:38pm: Rep. Frank is committed to keeping to the schedule, but is going to go over his 12:30pm goal for getting the execs off the hot seat in hopes of including some Michigan representatives in the discussion. The 12:30 deadline could be an unintended consequence of the lawmakers shaming the execs into driving to Washington instead of taking corporate jets. As anyone who has ever had to get out of Washington on a Friday afternoon knows, traffic picks up around 2:30pm. Safe to bet Wagoner, Nardelli and Ford's Alan Mulally will be eager to get on the road. 12:18pm: Rep. Price from Georgia (where Kia Motors is currently building a plant) asks why tax dollars collected from workers at plants run by foreign automakers should go to bail out their competitors. Wagoner responds that many of those factories (including, we might add, the Kia factory) was built with the assistance of considerable state incentives. And many of those foreign automakers are suffering as well. "In many cases those companies are seeking support from their own governments now," Wagoner said. 12:08pm: Rep. Kanjorski is pressing Nardelli on the Cerberus issue. The executive's answer: "I assume they have no access to additional funds." Again, the private ownership is, without a doubt, an issue for Chrysler. No one is asking Wagoner why individual investors, who collectively have access to trillions in potential capital, are not stepping in to bail out General Motors. Cerberus is an attractive boogieman, a convenient fat cat that can be targeted in hearings. Chances are at the end of the day the PE firm will not keep Chrysler from receiving assistance, but again, it has to worry Nardelli. 11:57am: Ginny Brown-Waite (R-Fla.) repeats a popular theme from yesterday in the Senate: If Cerberus Capital Management LP with its $25 billion in assets won't bail out Chrysler, why should Congress? Unlike yesterday Nardelli was given a chance to respond today, explaining that Chrysler has been able to continue to draw down committed funds from Cerberus, and arguing that the pension funds and other investors in Cerberus have fiduciary duties not to be overweighed in any one business (especially a lousy one like autos). The answer is not an easy one and might not go over well on main street, but at least he got it out there. There is certainly a school of thought out there that somehow having a private shareholder like Cerberus makes Chrysler less worthy of a bailout than GM and Ford, who are publicly traded (though the Ford family does still control that automaker). It seems unlikely the sentiment is strong enough in Congress to make Chrysler a scapegoat and cost that company assistance, but it has to be a worry for Nardelli and Chrysler. 11:48am: Sobering news from GM CEO Rick Wagoner on how far we still have to go on batteries and electric cars. It is argued by many that the price and inefficiencies of batteries currently make electric cars not cost competitive for many consumers. Improving battery technology therefore is a key to getting gas engines off the road, a long-term goal to decrease our dependence on oil and cut emissions. Wagoner estimated it is going to take at least two generations of battery improvement to reach cost-competitiveness. If that is true, it is unlikely we will see cheap electric cars in the showrooms before 2016 or 2017 at the earliest. 11:35am: Rep. Jeb Hensarling still can't think of any industries that are not hurting. We suggested one at 10:08, the collection agencies. Now he wants two more? How about employment counselors and personal bankruptcy attorneys? (There is a spam email going around suggesting a career in the growing loan modification business, so maybe that is another one.) Chrysler's Bob Nardelli had the nerve to suggest that because the automakers employ more than some of the laundry list of small businesses Hensarling named from his home district, perhaps there is more reason for the government to get involved. But let the record show that he offered no one who is not in need of a bailout. 11:21am: Rep. Gwen Moore (D-Wis.) wants to know why the auto execs are not demanding nationalized healthcare. The execs gave polite responses, but the looks on their faces said "You gotta be kidding me." The companies are already at the center of the national debate on oil, the environment, and now the growing federal deficit. Safe guess that Rick Wagoner is in no mood to become the poster boy for healthcare reform. 10:58am: An interesting theme is developing at this hearing. Call it the price of honesty. The domestic automakers, by most estimates, have too many dealers. Having too many dealers adds to expenses, and cuts into profitability by creating ultra-competitive local environments. The automakers in their plans looked to solve this problem, pledging to ax as many as one-third of their domestic dealerships as part of their turnaround plans. It is a move most financial analysts will say is necessary to restore profitability to the Big Three. Alas, as the execs are learning today, dealerships are also big employers in Congressional districts. GM has 6,000-plus dealers, or on average more than a dozen in each district. And the execs are getting hit hard by lawmakers worried about how those dealers will make out when the cuts are enacted. The lesson is a simple one. $34 billion in taxpayer money is a lot easier to vote for than losing a couple of hundred jobs back home. Maybe lawmakers didn't really want all of the details they received. 10:37am: More details of Gettelfinger's assertion that a prepack will not work is in his prepared testimony, available here. Some key points, quoting from his remarks: Pre-packs can work with financial restructurings, i.e., those that do not involve substantial operational issues. Where a company must restructure its balance sheet, but the business is otherwise sound, large creditors holding secured and unsecured debt are more likely to agree on the business fundamentals, and therefore more likely to reach a negotiated agreement on restructuring terms -- for example, swapping debt for equity or extending debt maturities. But the domestic automobile manufacturers are in the midst of a much broader restructuring which is, to a large degree, operational. They are shifting their product mix; they are developing new-technology vehicles; and they are revamping their production locations. None of these issues can realistically be addressed in a pre-packaged bankruptcy, which is aimed at obtaining the consent of creditors to renegotiated terms on their financial debt instruments. Pre-packs were not intended for operational restructuring scenarios. 10:27am: UAW Ron Gettelfinger in his opening statement says "a so-called prepackaged bankruptcy is simply not a viable option for restructuring," citing research that indicates the public will not buy vehicles from the company in bankruptcy and, more importantly, the difficulty of doing a prepack for such a huge and complex company in a matter of weeks. 10:19am: Rep. Tom Price (R-Ga.) wants "a more tried and true and, dare I say, American" solution: Bankruptcy. Nice to see a bipartisan flag-waving effort coming out of Georgia. 10:14am: Rep. David Scott (D-Ga.) says autos are not selling because Americans do not want SUVs. He urged the companies to quickly roll out smaller cars and "appeal to American patriotism" to buy domestic. Scott might be curious to see that Ford's F-series pickup and Chevy's Silverado were the two top selling vehicles in November. Americans, absent $4 gas, do want trucks. At least some trucks. And gas-friendly Toyota and Honda also saw their sales down more than 30% in November year-over-year. Patriotism, perhaps? Or more likely, there are a lot of financial and economic reasons autos are not moving right now that are more significant than product mix. Meanwhile Rep. Frank, who to his credit has been a stern task master keeping these opening statements within allotted time, was just accused of discriminating against Democrats. Barney Frank: Friend of Republicans. We live in remarkable times. 10:08am: Rep. Jeb Hensarling (R-Texas) says "nobody in this room wants to see the Big Three fail," but he does have some lingering doubts about providing a bailout package. Hensarling would prefer to free $25 billion in loans available to the autos for green technologies for general corporate purposes, a non-starter to date for Democratic leadership. Hensarling asks if Congress gives the autos fresh cash, why not other industries? "Every industry in America is hurting today," Hensarling said. "Show me one that isn't?" We don't have the data in front of us, but we are guessing the collections business is doing just fine thank you. 9:58am: Donald Manzullo (R-Ill.) suggests tax credits for buying cars to help stimulate demand. Could this be the beginnings of a great speculative auto buying bubble? 9:54am: Rep. Peter King (R-N.Y.) is nothing if not reasonable. "If I was reasonably convinced the money would work, I would support it," King said. "We want some reasonable expectation that whatever we do has a reasonable chance of working." 9:48am: Paul Kanjorski (D-Penn.) tells his colleagues they do not have time to right the wrongs of the auto industry, and begs them not to "play chicken" and risk seeing a company go under. What Congress does have time to do, he says, is provide $4 billion in bridge loans needed to get the companies into 2009, when Congress will have more time to deal with the problems. "If we are being practical, that is what we should be doing," Kanjorski said. 9:44am: Rep. Spencer Bachus (R-Ala.), the ranking Republican, begins by pointing out the positives. Before the crisis, he said, "the trends were positive. Unions had made concessions, costs were coming down," and the automakers were trying to get their house in order. Still, he is concerned at throwing good money after bad. "What we need is a solution, not a first installment," Bachus said. Expect that to be a popular theme today. 9:40am: The auto execs are back on Capitol Hill, this time on the House side as they seek $34 billion in government loans they say are needed to avoid bankruptcies. Rep. Barney Frank (D-Mass.), chairman of the Financial Services Committee, opens the hearing by mentioning the terrible employment numbers announced this morning, which he says underscores the need to do something for the automakers to avoid further job losses. "There is a consensus that reorganization is needed, that a change in the product mix is needed," Frank said. The influential Congressman also added a fresh argument against forcing the companies to go bankrupt. Bankruptcy, Frank said, would allow the automakers to discharge their massive amount of debt (more than $40 billion from GM alone). Frank warned that discharging that debt would "greatly exasperate the debt crisis in this country." -- Lou Whiteman Lou Whiteman is a senior writer for The Deal covering the airline and automotive industries CategoriesComments Deal Video
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The auto bailout is a huge mistake. Throwing good money after bad never makes sense. Consumers will not be lined up to purchase these inferior auto products. Many people will be angered about this bailiout now that the light has finally been shed on their industy and corporate greed exposed. Buyers will not be inclined to buy these cars and trucks. Consumers are well aware of how GM, Ford and Chryler employess are accostumed to UAW entitlements that put an emphasis on labor and less importance on innovation and quality in their product. Most of us don't have a union behind us to protect our livlihoods. Why should they be special? Perhaps it is time that auto makers and their employess alike learn what the real business world is like for those who don't have union contracts-which would be the majority of all the rest of us.