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 3:44pm: More than five hours after it began, the Senate is finally done with the automakers. Hopefully the executives are smart enough to stay overnight in an American-owned hotel and not risk further scrutiny going into tomorrow's grilling on the House side.Most Congressional hearings, and this one was no exception, do little to change the mind of lawmakers. So it is usually more important to listen to what the lawmakers have to say, and use their comments to gauge prevailing opinion and try to predict how things will eventually play out. And on that scale, it appeared to be a good day for the automakers. As was true two weeks ago when the companies appeared before Congress, there appears to be a majority willing to provide some assistance to the automakers. The debate is how to go about it. That was an impossible impasse two weeks ago. This time, however, at least some members from both parties seem to be gelling around the idea of a czar that would check in on these companies, make sure they are following through on their restructuring promises, and doling the money out in pieces as progress is made. The most poignant image from the hearing was Sen. Dodd's chart showing financial firm Citigroup receiving $300 billion, Fannie and Freddie getting $200 billion, and AIG receiving $150 billion. As Dodd noted early in the day, executives from those companies were not grilled in front of Congress before they received their cash. And no czar (beyond normal regulators) is checking up on them every few months. The message is clear: Given what has been spent already, and given the oversight the automakers are willing to submit to, $34 billion is pittance. Or at least Rick Wagoner hopes so.
3:35pm: Sen. Corker just suggested shared pain as a condition
for a bailout. Bondholders perhaps would accept 30 cents on the dollar
(a premium, Corker notes, to prices the bonds are trading at today) and
the UAW could quickly agree to lower pay scales compatible to what is
paid by Toyota or Honda.
Wagoner noted that the plan he submitted, in his opinion, tries to address those issues, if not the specific amounts of concessions. He said that putting a deadline on concessions and tying it to funding could be "constructive." 2:58pm: Sen. Robert Bennett (R-Utah) is worried about overcapacity in the industry, and wonders if General Motors and Chrysler might rekindle merger talks held in recent months. Wagoner earlier in the day said GM backed away from a potential deal in part because the automaker wanted to get its own house in order and saw more pressing priorities. Wagoner said that their internal analysis showed there would be cost savings to a deal, but said his company found it impossible to raise the cash necessary to do a deal. Bennett asked that if the government provides the financing, would they be interested in doing a deal, and asked what the panel would say if the government mandated a merger between Chrysler and GM as part of getting funding. Not surprisingly, Gettelfinger questioned whether there would really be savings in a merger and said he would oppose a deal mandate. Wagoner said he "would be very willing" to look into anything that was suggested, and Nardelli said "if in fact that is the criteria" he would do it. Zandi suggested such decisions would be better left to an oversight board, and not Congressional action. The point is probably moot, as Bennett's party is not in power and he is likely to find little support for forcing a deal from the other side of the aisle. But something to file away: If indeed GM and Chrysler can get past their near-term challenge, both sides seemed open to talking again. 2:48pm: Warrants are a popular idea to protect taxpayers and give the government some of the upside should these turnaround plans work. But Sen. Carper is curious as to how warrants would work for a private company like Chrysler. Nardelli said that Cerberus has committed to forgo carry-forward interest and other benefits to make sure the government is protected. "When you bring everybody to the table, Cerberus is more than willing to provide the security and commitment" to taxpayers, he said. 2:04pm: There has been some speculation that Congress would like to make an example of at least one of the automakers. It seems Chrysler, in part because it is owned by Cerberus Capital Management LP instead of public shareholders, is the most likely victim in this scenario. Sen. Corker just summed up Chrysler's plan, in his opinion, as trying to hang around long enough to find a merger partner, and asked whether it is appropriate for the government to fund that effort. "I have to tell you it troubles me a bit that all we are doing is providing capital to you so you can hang out long enough to get married," he said, asking why Chrysler doesn't just get more money from Cerberus. Nardelli admitted that Chrysler, which separated from Daimler last year, is somewhat hollowed out post-divestiture. But, as might be suspected, he objected to Corker's comments. "I can assure you I don't wake up every morning thinking about how to sell this company," Nardelli said. "We are busting our guts trying to fix this company." Nardelli was interrupted when he attempted to address the Cerberus funding question. But he did manage to argue that Cerberus gets its cash from pension funds and other sources that are not willing to add too much exposure to any particular industry, especially something risky like autos. 1:51pm: United Auto Workers president Ron Gettelfinger summed up the urgency for lawmakers: "I believe we could lose General Motors by the end of this month." 1:48pm: From dealers to manufacturers to unions to suppliers to economists, it appears the auto czar concept is an across-the-witness-panel hit. At least conceptually. Who knows what it will look like, but it is increasingly looking like there will be a point person looking over these companies if they get government aid. 1:30pm: The automakers appear ready to accept tranched funding, and government oversight. Nardelli and Wagoner both supported the idea of setting a firm deadline, say March 31, to look at how the automaker restructuring is progressing, and to make future funding contingent on that assessment. (Ford hopes not to have tapped the line by March, but Mulally said he would support an oversight board.) 1:21pm: More questions trying to bridge the gap between Zandi's figures and those provided by the automakers. Wagoner said he believes his projections for how much lending would be needed was based on a "conservative scenario," but admitted that there are factors that could lead to more money being needed. GM could need more cash if auto sales do not return, or if the GMAC lending unit is not granted bank holding company status and is unable to resume lending for new car sales. Mulally, meanwhile, said he believes the plan he laid out "is a very conservative, very realistic scenario." Ford, recall, believes it can reach breakeven by 2011 potentially without tapping the government, but has asked for a $9 billion credit line as a backstop in the event conditions deteriorate. 1:16pm: Following up on our 12:01 post, Sen. Shelby just pressed the execs on whether they intended to drive BACK to Detroit (when, most likely, the spotlight will not be on them and there will be less of a PR impact), and asked if they had carpooled. Let the record show that both Wagoner and Chrysler CEO Bob Nardelli rotated driving responsibilities with a colleague, while Ford's Alan Mulally apparently was in the drivers seat alone the entire trip. And yes, all three intend to drive their cars back home again when this is all over. 1:09pm: Sen. Shelby is pressing Zandi on his $75 billion to $125 billion estimate. Zandi said he is skeptical about the $34 billion total number because his expectations for total vehicle sales and the domestic's share of that total market are lower than what the automakers have laid out. Others have also pointed out seemingly rosy projections for foreign sales growth in places like Russia, where GM is expecting robust growth despite falling oil prices, as a reason to worry that more cash might eventually be needed. 12:53pm: Mark Zandi, chief economist for Moody's Economy.com, warned Congress that successfully restructuring the auto companies is likely to take a lot more cash than the $34 billion in loans they have requested. By his estimate, the price tag will likely be between $75 billion and $125 billion over the next two years. Still, he said the bailout might be the best option. "Without any government help, the Big Three will quickly end up in bankruptcy and be effectively liquidated, resulting in hundreds of thousands of layoffs at just the wrong time for the sliding economy," Zandi said. Zandi suggested the money be provided in a series of tranches, with the first being enough to stave off a bankruptcy filing and then the remaining cash made available only if the companies' restructuring plans are showing signs of working. 12:42pm: James Fleming, president of the Connecticut Automotive Retailers Association, and Keith Wandell, president of Johnson Controls Inc., are making the case that this bailout is about more than just the Big Three. Fleming said that already a number of dealerships in Connecticut have shut down, costing 700 jobs in the state. He warned the impact of a bankruptcy on dealers would be dire. "This is not a bailout bill for Detroit or Wall Street," Fleming said. "This is about investing in our small businesses. If you say yes to this package, it gives us time to adjust to what is happening in this economy." Similarly, Wandell made the point that inaction by Congress could indeed cause a ripple of bankruptcies by suppliers, as the automakers have argued. "Should one of the Big Three fail, a significant number of suppliers would fail," Wandell said. 12:19pm: TheDeal's Washington Bureau Chief Bill McConnell checks in from outside of the hearing room, reporting that Congress seems to be gelling around the idea of an appointment of an auto czar (probably either the Treasury Secretary or someone chosen by the Treasury Secretary) who would have powers similar to a bankruptcy judge and who would oversee the automakers' restructuring. Sen. Bob Corker (R-Tenn.) told McConnell that the goal is to instill "the same sense of urgency that a Chapter 11 filing would put in place." Sen. Schumer agreed, telling McConnell "I think people want to figure out a way to impose real conditions" on the companies." 12:09pm: GM's Rick Wagoner is the first up, telling Senators that "the plan we are submitting to you is one I and the General Motors team believe very strongly in." The automaker says it needs $4 billion by yearend, another $8 billion early in 2009 and another $6 billion in a line of credit to get it through its turnaround. 12:01pm: GAO's Gene Dodaro, who was generally supportive of government assistance, is done, and now it is time for the main event. Good to see all three auto execs made it to Washington and avoided the PR nightmare of a breakdown along the road. It will be interesting to see if any of the Senators criticize them for not saving gas by carpooling. 11:43am: Give Sen. Tom Carper (D-Del.) credit for thinking outside the box. Carper just suggested that perhaps lawmakers could mandate that banks that have received TARP funding be required to lend some of that cash to automakers, with the Federal government perhaps backing those loans. Seems unlikely to happen, but an interesting thought all the same. 11:30am: Sen. Bob Menendez (D-N.J.) just hit on one of the problems the automakers are having in securing assistance: Disappointment from lawmakers, and in particular Democratic lawmakers, over how the TARP has been managed. Congress largely gave the Treasury a blank check with the TARP, and left it up to Paulson to dole out the money as he sees fit. Much of the need for oversight commentary coming from lawmakers today is a direct response to their disappointment about how Paulson has used the TARP. Fool them once, shame on them, but they don't intend to be fooled again. 11:15am: Sen. Chuck Schumer (D-N.Y.) started his remarks by supporting the automakers' contention that bankruptcy is not an option for the companies, and said Congress needs to act to avoid failures that could make a bad economy worse. But his support has limits. Schumer said he believes Congress needs to put one person in charge of the bailout, and give that person the authority to hold the companies accountable once they have the government's money. "We care less where the money comes from, which has been the big debate, but how it is spent," Schumer said. "Speaking for myself, I don't trust the car companies' leadership. To hand money over with vague, unenforceable promises is not good enough." 11:02am: Gene L. Dodaro, Acting Comptroller General, United States Government Accountability Office, in witness testimony said that either the Federal Reserve or the Treasury Department could use existing authority to provide emergency loans to the automakers. Treasury Secretary Paulson has said TARP money can only be used for financial services firms. But Dodaro said in his opinion the TARP legislation is "worded broadly enough" to allow Paulson to lend to GM or Chrysler. Dodaro also stressed the importance of establishing an oversight
board to manage the government's loans, similar to what was set up for
the airlines after the attacks of Sept. 11 and for Chrysler when it was
bailed out in the 1980s. 10:51am: Sen. Shelby lays out the bottom line on why the automakers are facing resistance on the loans: There is little doubt that opinion is shared by some other lawmakers, especially on the Republican side. How many, and how convincing GM CEO Rick Wagoner is in arguing otherwise, could be the key to the companies getting the cash. 10:40am: Opening statements by both Sen. Christopher Dodd (D-Conn.) and Richard Shelby (R-Ala.) show that differences in opinion on the bailout remain. Dodd said that while the recovery plans submitted by the automakers might not be perfect, the government must find a way to save these companies. Dodd said that if the federal government can find hundreds of billions of dollars to rescue financial companies, it ought to be able to come up with a far smaller amount for the auto companies. Shelby, meanwhile, complained that the price tag on the package had jumped since the automakers last appeared before Congress two weeks ago. He asked automakers to explain the jump, and asked why assistance would not just "prop up a failed business model for a few months." -- Lou Whiteman Lou Whiteman is a senior writer for The Deal covering the airline and automotive industries CategoriesComments
From: Richard Burkhart,
Just what you would expect. An AUTO CZAR. The only answer that congress has to a problem is "more government". If it weren't for the excesses of the Pension Reform Act, EEOC, Erisa, EPA, Worker's Comp, the Absence of Tort Reform, CAFE, NAFTA,SEC, NRLB,FDA, etc....a lower regulatory cost per car in America would allow the Big Three to return to running their businesses instead of catering to corrupt politicians who don't know the meaning of cash management.
Posted on:
December 4, 2008 1:25 PM
From: Erich Riesenberg,
Richard, are you claiming Honda and Toyota operate profitably in the US by violating US laws and regulations? Try to be honest.
Posted on:
December 4, 2008 3:57 PM
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As awful as the Plan has been, I do not blame it for not stimulating lending. My recollection is people were worried about ATM cards working and bank runs. That has been avoided. There are plenty of problems, foremost the terms on the Preferred have been overly generous.
Would still like someone to ask Buffett how he feels about the failure to spend $700 billion buying troubled assets. Does he still support the original plan, and if so, does he think it would have been implemented by paying market prices as Buffett suggested or above market as Paulson planned? I would like to know if Buffett was misstating the premise of the plan intentionally or by mistake.