Democrats on Capitol Hill worked overtime this weekend to draft a proposal to loan $15 billion to Detroit’s automakers. Executives told Congress last week that without the funds, there’d be bankruptcies in the industry by the end of the year.
“I think they’re very close to a deal, I’m very confident there will be a deal, and that will happen within 24 hours,” said Sen. Carl Levin (D–Mich.) on a Fox News program Sunday.
CEOs of General Motors Corp., Ford Motor Company and Chrysler LLC drove to Washington last week to lobby for about $34 billion in federal loans. GM CEO Rick Wagoner and Chrysler’s Robert Nardelli said their companies would soon be insolvent without the funds.
In Thursday’s and Friday’s hearings, lawmakers pressed the Big Three executives on their plans to restructure their companies. Many said they worried that that even after receiving a bailout, the automakers would ask for additional funds in future months.
The new package follows a concession on Friday from House Speaker Nancy Pelosi (D–Calif.), who agreed to pull money currently allocated to a $25 billion fund intended to help automakers build lower-emission vehicles. She originally wanted to use funds from the Troubled Asset Relief Program, the $700 billion plan aimed at helping keep big banks from failing. Movement on the plan reached a standstill when Republicans refused to tap into TARP funds.
For the automakers to receive the funds, the government will likely require the companies to allow federal oversight and to make drastic cuts and eco-friendly decisions.
“There is a consensus that there must be conditions attached,” Levin said. “There must be an administrator of the program who enforces rules — makes sure it’s a new type of industry.”
Levin added that Congress could appoint a “car czar” within 60 to 90 days of the bill’s passage to provide oversight.
Some Republicans have expressed concerns that such oversight could lead to excessive government intervention in the Big Three’s affairs.
“I’m not comfortable with that,” Sen. Jeff Sessions (R–Ala.) said on CBS’s “Face the Nation” Sunday. “I am uneasy about the federal government telling these companies what they’ve got to do to be successful.”
Ross School of Business Prof. Martin Zimmerman, a former group vice president of Ford, said government involvement wouldn’t necessarily be a bad thing, pointing to Chrysler’s successful bailout in 1980.
“It’s reasonable for Congress to have an oversight role and to ask that the companies pursue plans that allow them to pay back the loans,” Zimmerman said. “Any bank would do that. Any private purchasers of debt would demand that.”
According to David Cole, a former University professor and chairman of the Ann Arbor-based Center for Automotive Research, the government could profit from the bailout like it did in 1980.
Cole and Zimmerman both said they were certain that warrants — rights to buy stock at a fixed price — would be included in the bailout deal. Such provisions were a part of both Chrysler’s 1980 package and the recent Wall Street bailout, Zimmerman said.
The U.S. government made about $350 million by selling the stock it acquired from Chrysler through such warrants, which, if adjusted for inflation, would amount to billions today.
— The Associated Press and Daily Staff Reporter Caitlin Schneider contributed to this report.