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Loans for the Auto Industry

The jobs of millions of middle class Americans, and the pensions and benefits of millions of retirees depend on a vibrant domestic auto industry. The American auto manufacturers produce some of the best vehicles in the world. GM and Chrysler have suffered from the global recession, and federal loans will allow them to reorganize and retool. This is the first step on the road to long-term sustainability for our domestic auto industry.

After legislation to provide loans to GM and Chrysler failed in the U.S. Senate in December 2008, the Bush Administration provided $17.4 billion in loans by tapping funds already appropriated for the Wall Street bailout. Loan assistance for the automakers is not a new concept. In 1979, the federal government provided Chrysler a $1.5 billion loan. Chrysler paid back the full amount with interest within four years, and operated successfully for two decades because of this assistance. The auto assistance plan has strong taxpayer protections, provides transparency, restricts executive compensation, and includes tough oversight provisions.

Federal loans for the domestic auto industry require a commitment on the part of auto executives, employees, labor unions, dealers, suppliers, creditors and shareholders to participate in the restructuring efforts that will ensure the long-term viability of an industry that helped create our nation’s middle class.

I agree with the Obama Administration that GM and Chrysler must face hard choices and deadlines for restructuring if the companies are to remain viable. Under the terms of GM’s and Chrysler’s loan agreements with the Treasury Department, the companies were required to submit acceptable financial restructuring plans for long-term viability, international competitiveness, enhanced fuel efficiency standards and advanced technology vehicle manufacturing. Chrysler and GM submitted revised restructuring plans to the Treasury Department on February 17, 2009.

On March 30, 2009, the Administration announced that neither GM nor Chrysler had a credible path to viability, and there was not sufficient justification for new taxpayer investment. The Administration gave GM until the end of May, and Chrysler until the end of April, to establish long-term viability restructuring plans. If either company establishes viability, through further restructuring of operations, elimination of held debt, or through mergers with other automotive companies, then federal loans would again be provided.

In April, Chrysler reached an agreement with Fiat, the UAW and the Obama Administration on a restructuring agreement. Fiat would purchase up to a 35 percent stake in Chrysler and a UAW controlled trust would gain a 55 percent stake for union retiree benefits. This merger and cost restructuring agreement is now eligible for further federal loans. On April 30, 2009, Chrysler filed for bankruptcy because a small number of Chrysler’s creditors, mainly small hedge funds and mutual funds, would not agree to the negotiated compromise. Chrysler has already emerged from bankruptcy, and with support of $6 billion in federal loans and support from Fiat, it will remain a viable company employing American workers.

In late May 2009, GM similarly reached a restructuring agreement with the UAW, GM bondholders, and the Obama Administration and filed for bankruptcy on June 1, 2009. Under this agreement, GM will receive $30 billion in loans from the federal government in exchange for a 60 percent equity stake in the company. The reduced GM qualified pension plans for hourly and salaried employees will be transferred to the new GM as part of the purchase process.

It is also appropriate that the American taxpayers, as a large investor in Chrysler and the largest investor in GM, have a say in the oversight of those companies. The Obama Administration will have a say in electing some of GM’s board of directors. However, it is important that the Administration refrains from intervening in the day-to-day operations of either company, and I am pleased with the Administration’s commitment to remain hands-off.

I was disappointed at the way Chrysler and GM conducted their restructuring in regards to their dealership closures. On May 12, 2009 I held an Energy and Commerce Oversight and Investigations Subcommittee hearing on the topic. I want to see GM and Chrysler return to strong and vibrant companies, but I am concerned that the accelerated time frame for dealership closures, and the way in which dealers have been compensated, actually damaged the company brands. I am also concerned that the closures will hurt rural communities disproportionately.

One in 10 American jobs is linked to the auto industry. Chrysler, Ford, and GM directly impact about five million American jobs. An estimated three million jobs would be lost in the first year if the American automakers collapsed – nearly three times the jobs lost nationwide in 2008. Not providing bridge loans would cost taxpayers and the U.S. economy an estimated $150 billion in job loss benefits and millions more autoworker retirees losing their retirement and health care benefits.

The automakers are not asking for a handout. They are asking for a loan that only the federal government can provide. If the GM and Chrysler do not receive assistance, then thousands more Americans will lose their service and retail sector jobs. It is more than just the domestic auto industry at stake. It is the American middle class. Currently, nine other countries are providing either economic assistance with a direct infusion of cash or relaxing auto emission standards to help their domestic automakers. The United States must provide loans to our American automakers.

For all these reasons, I voted to support the loans for the automotive industry in the House and support the Administration’s loan agreements with GM and Chrysler. I will continue to work with my colleagues in Congress to protect the viability of our domestic automakers and the American middle class while ensuring that taxpayer money is spent wisely.