Posted by: David Kiley on November 12, 2008
Politics over the proposed bailout of the auto industry may cost the tax-payers billion of extra money they need not spend.
Next week, Congress will convene in a lame-duck session of Congress, and will likely pass a bill that will approve between $25 billion and $50 billion in loans to the auto industry. It is assumed that GM, Ford, Chrysler and auto suppliers will apply for the loans. GM figures to ask for at least $15 billion, perhaps more.
Chrysler LLC is widely expected to apply as well. And here is where the waste issue comes in.
GM and Chrysler want to merge. Before GM’s liquidity issue became so dire, the automaker was in discussions to acquire the smaller carmaker owned by Cerberus Capital Management, a hedge fund.
GM had to shelve the talks, largely because politicians in Washington, and the Michigan Governor, told them that opponents to the bailout wouldn’t even look at it if the money is being used to complete a merger deal, and thus result in the loss of an estimated 35,000 jobs.
But the Chrysler issue isn’t going away just because the bailout is politically more digestable with the deal off the table.
Cerberus is motivated and poised to get out of the car business. Should Congress grant billions in loans to a company whose owners are trying, literally, to get out of Dodge?
GM and Ford, as far as I can tell, are still pursuing the basic goal of perpetuating the corporation. Not so at Chrysler.
The parameters and terms of the loan program aren’t known yet. But if a year from now, or sooner, when GM tries to rekindle the discussions and plans to acquire the company, they will have to, I assume, absorb Chrysler’s long term debt on top of their own.
Between now and then, Chrysler will probably use the money to continue restructuring, cutting jobs, etc.; that is if they apply.
And here is a thought. Chrysler LLC is private. Will the company give Congress a document dump about its financing? And will those documents be open to the public to view? If Chrysler LLC has to open its books, will Cerberus pass on the loans?
One of the big issues that will be scrutinized are the huge payments due to executives like CEO Bob Nardelli, vice chairman James Press, vice chairman Tom Lasorda and chief marketing officer Debra Wahl-Meyer.
These are all good people. So, it’s not personal. But in this atmosphere, the tax payer shouldn’t be footing the bill for tens of millions s of dollars flowing to people (Nardelli, Press and Lasorda) who already have many millions of dollars. Have they been working hard? Sure. But the company is in a death grip. That ought not to be rewarded beyond a basic, competitive industry salary.
If GM and Chrysler both wind up getting loans, it would be a responisible idea for Congress to require that a goverment-appointed steward review the terms of any asset sales, mergers or acquisitions. I hear former New York Governor Eliott Spitzer is available!
The Chrysler executives, when they signed on, were meant to earn huge payoffs when the company was sold or broken up. But let’s not forget that Cerberus and the executives who signed on rolled the dice when they signed up with Chrysler. The economic meltdown isn’t their fault. It’s not mine either. But my retirement investments are hammered beyond recognition. And I’m not getting help from the Treasury. My understanding is that when you roll the dice at the casino, you have as much chance of losing as winning.
Pelosi says that executive compensation and no golden parachutes will be part of the loan bill. Let’s make sure.
Taxpayers and the media had better be able to review Chrysler’s books and planned payouts if the company applies for government loans. President-elect Obama and other Democrats have talked a lot about transparency. This would be a good place to start.