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Auto bailout plan collapses in Senate

December 12, 2008

Republicans balk at $14 billion deal, leaving GM, Chrysler's fate in the air

WASHINGTON – The Senate last night abandoned efforts to fashion a government rescue of the American automobile industry, as Senate Republicans refused to support a bill endorsed by the White House and congressional Democrats.

The failure to reach agreement on Capitol Hill raised a specter of financial collapse for General Motors and Chrysler, which some experts say may not be able to survive until the end of the year.

After Senate Republicans balked at supporting a $14 billion auto rescue plan approved by the House on Wednesday, negotiators worked late into the night to broker a compromise. They deadlocked over Republican demands for steep cuts in pay and benefits by the United Automobile Workers union in 2009.

Associated Press Workers exited the Chrysler truck assembly plant in Warren, Mich., yesterday. An auto industry bailout stalled over proposed steep pay cuts by the auto workers union.

PAUL SANCYA / Associated Press General Motors Corp. headquarters could be seen through the doorway of an empty warehouse in Detroit on Wednesday. Burdened by heavy debt, GM has said it might not survive the next month.

The failure in Congress to provide a financial lifeline for GM and Chrysler was a bruising defeat for President Bush in the waning weeks of his term, and also for President-elect Barack Obama, who earlier yesterday urged Congress to act to avoid a further loss of jobs in an already deeply debilitated economy.

“It's over with,” Senate Majority Leader Harry Reid of Nevada said on the Senate floor, after it was clear that a deal could not be reached. “I dread looking at Wall Street tomorrow. It's not going to be a pleasant sight.”

Reid added: “This is going to be a very, very bad Christmas for a lot of people as a result of what takes place here tonight.”

The Republican leader, Sen. Mitch McConnell of Kentucky, said: “We have had before us this whole question of the viability of the American automobile manufacturers. None of us want to see them go down, but very few of us had anything to do with the dilemma that they have created for themselves.”

McConnell added: “The administration negotiated in good faith with the Democratic majority a proposal that was simply unacceptable to the vast majority of our side because we thought it frankly wouldn't work.”

Moments later, the Senate failed to win the 60 votes need to bring up the auto rescue plan for consideration. The Senate voted 52-35.

The White House said it would consider alternatives but offered no assurances.

SHOULD CONGRESS BAIL OUT THE AUTO INDUSTRY? PRO GM, Ford and Chrysler employ 239,000 people in the U.S. The country's extensive network of auto suppliers has more than 600,000 workers. Economists say the industry supports about 3 million jobs. The economy cannot afford more job losses. Despite its long-term problems, the auto industry is now a victim of the global credit crunch. Automakers have been working to adapt to a changing consumer market, but they need immediate help to survive the current economic crisis. Chapter 11 is not an option. Consumers will not buy cars from companies in bankruptcy. The auto industry is the backbone of U.S. manufacturing and the cornerstone of the blue-collar middle class. CON Automakers' problems are their own doing, born of bad business decisions, uncompetitive labor agreements and vehicles that Americans have decided are second-rate. Bailout will only postpone the inevitable. The failure of one or more of the companies is necessary if the free market is to work properly. Including automakers in the bailout could attract a string of other ailing industries looking for money. By having the automakers go through Chapter 11, high-cost contracts with labor unions could be canceled.

“It's disappointing that Congress failed to act tonight,” said Tony Fratto, the deputy press secretary. “We think the legislation we negotiated provided an opportunity to use funds already appropriated for automakers, and presented the best chance to avoid a disorderly bankruptcy while ensuring taxpayer funds only go to firms whose stakeholders were prepared to make difficult decisions to become viable. We will evaluate our options in light of the breakdown in Congress.”

The White House almost certainly will face some pressure to act on its own to prop up GM and Chrysler, an idea that administration officials have resisted for weeks, but it is unclear that enough money remains in the Treasury's $700 billion financial system stabilization fund to do so.

Until now, the Federal Reserve also has shown no willingness to step in to aid the auto industry, but Democrats have argued that it has the authority to do so and some said the central bank may have no choice but to prevent the automakers from bankruptcy proceedings that could have devastating ripple effects.

The rescue plan approved by the House on Wednesday by a vote of 237-170 would have extended $14 billion in loans to the troubled automakers and required them to submit to broad government oversight directed by a car czar to be named by Bush.

But even before the House vote, Senate Republicans voiced strong opposition to the plan. At a luncheon with White House chief of staff Josh Bolten, they rebuffed his entreaties for support.

Yesterday morning, McConnell dealt a death blow to the House-passed bill, giving a speech on the Senate floor in which he said that Republican senators would not support it largely because it was not tough enough.

 

“In the end, its greatest single flaw is that it promises taxpayer money today for reforms that may or may not come tomorrow,” McConnell said.

But McConnell also held out slim hope for a compromise suggesting that Republicans could rally around a set of proposals by Sen. Bob Corker (R-Tenn.), who said that the bill did not set stiff enough requirements for the automakers.

Obama, whose transition team had consulted with congressional Democrats and the Bush White House on the efforts to help the automakers, used his opening remarks at a news conference in Chicago to urge Congress to act.

“I believe our government should provide short-term assistance to the auto industry to avoid a collapse while holding the companies accountable and protecting taxpayer interests,” Obama said. “The legislation in Congress right now is an important step in that direction, and I'm hopeful that a final agreement can be reached this week.”

But in Washington, there was little appetite among Senate Republicans for yet another multibillion-dollar bailout of private companies. Still, with the Democrats and the White House eager to reach a deal, Corker's proposal became the subject of intense negotiations well into the evening.

Under his plan, the automakers would have been required by March 31 to slash their debt obligations by two-thirds – an enormous sum given that GM alone has more than $60 billion in outstanding debt.

The automakers also would have been required to cut wages and benefits to match the average hourly wage and benefits of Nissan, Toyota and Honda employees based in the United States, and the companies would have had to impose equivalent work rules.

It was over this proposal that the talks ultimately deadlocked, with Republicans demanding that the automakers meet that goal by a certain date in 2009 and Democrats and the union urging that the deadline wait until 2011 when the UAW contract expires.

GM, Chrysler and industry experts have said that the two companies likely would not survive until the end of this month without government aid, and the companies already had agreed to carry out sweeping reorganization plans in exchange for the help.

The negotiations over Corker's proposals broke up about 8 p.m., and Corker left to meet with Republican senators to brief them on the developments. The Republicans emerged from their meeting an hour later having decided they would not agree to a deal. Several of them blamed the autoworkers union.

“It sounds like the UAW blew it up,” said Sen. David Vitter, R-La.

Sen. Richard Shelby of Alabama, the senior Republican on the banking committee and a leading critic of the auto bailout proposal, said: “We're hoping that the Democrats will continue to negotiate, but I think we have reached a point that labor has got to give. If they want a bill, they can get one.”

 

Your humble Ace Reporter

Bob

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