Finally, a deal to help Detroit

Posted by: David Welch on December 6, 2008

pelosi.jpg

Finally, the politics has (very temporarily) been put aside and Washington appears poised to help Detroit. House Speaker Nancy Pelosi gave in to strike a deal that will pave the way for the government to bail out Detroit’s carmakers. Late Friday, Congressional Democrats settled on a compromise that will use funds from the Department of Energy’s $25 billion line of credit to lend money to General Motors and Chrysler, sources say. One Big Three lobbyist said that, if passed by Congress next week, it is expected that GM could tap $12 billion to $14 billion to keep going through the first quarter and Chrysler would borrow the $4 billion it needs to make it into March.

The amount is well shy of the $34 billion the three carmakers want. But this deal would keep the three carmakers going and punt a decision on a bigger loan program to President-elect Obama. When he takes office, his administration could use the money from the Troubled Asset Relief Program, which is the $700 billion set aside to help the banking system. The administration would also replenish DOE funds from another government source, likely TARP.

While both the House and Senate spent the last two days grilling the automakers on how they will use the money and whether or not they are viable, the real impasse was politics. Republicans and the Bush Administration wanted to use the DOE funds. But Pelosi and some Democrats opposed that saying that the DOE money should be used to help the automakers improve fuel economy. They wanted to use TARP money.

Of course, Pelosi’s argument was one smelly political red herring. The government already has stiffened fuel economy rules. So any car company that survives will have to improve fuel economy in the cars they build and sell anyway. Pelosi was just pandering to the environmental groups in her base that fund her campaign.

Republicans had an equally silly argument. They will loan the carmakers funds from the DOE fuel-economy fund, but not from the save-the-irresponsible-banker fund. When you’re risking billions of dollars on troubled car companies, does it really matter which account the cash comes from?

This just proves that many members of Congress weren’t worried about risking taxpayer’s capital. They were worried about risking their own political capital. Some Republicans couldn’t stomach a deal that might save union jobs. Though they’ll cut a big check to Citi Group in the blink of an eye. And some Democrats couldn’t anger the greens. That might mean less green to their next campaign.

In any case, it looks like Congress will save the carmakers. That’s certainly a worthy cause. But big questions remain. Will this pass? Probably. Will it be enough? Maybe, but only if still greater concessions are made by the carmakers’ creditors and union workers. Will Chrysler now be a viable, stand-alone company? No. My fearless forecast is that GM is waiting in the wings to snap up the rest of Chrysler as soon as the market and its balance sheet are stabilized. Then Chrysler gets folded into GM.

Reader Comments

Paul (Vw)

December 6, 2008 10:00 AM

>>> In any case, it looks like Congress will save the carmakers.

This will be considered a (no, the) colossal mistake by the history books. And by "save" I wonder if that means "preserve the status quo for unions at the cost to taxpayers like me."

I agree with you on this point:

>>> does it really matter which account the cash comes from?

Right. What bucket it came from does not matter...the problem is that it will just go down the drain.

David Yox

December 6, 2008 11:14 AM

Maximum wage
There are no foreign cars, just foreign Jobs, that don’t pay taxes here!
Who What When Where How much & Why = USA JOBS
GM Ford & Daimler Chrysler Products are full of foreign (not made or assembled in U.S.A.) Parts. The steel & everything is ordered from the lowest Bidder as it should be. Foreign car makes have good JOBS HERE to.
All Autoworkers Industry Sales & Service Jobs paying good wages with benefits, USA Jobs. Lets temporarily Help Them compete with the WORLD.
How, if The Job is here, lets kick in there. By a Maximum wage
(No Over-time No Bosses No Executives No Lear Jets No Bonuses No shift differential & No New Employees).
Union Hourly - Not To blame them, But to Honor our Country.
In The United States and its Territories only. My Load Lets build plants here!
Lastly Retired Auto Worker From any company that pays pensions
For an hourly job finished here.
Minimum wage of $7.15 hr. helps new workers Starting out.
Maximum wage of $45.00 hr. including benefits costs will helps old companies compete with the new companies all over the world now.
A bridge Investment purchase of new common stock, will work with reasonable conditions of change. The United States Government aid to all auto companies here, sales, & service hourly and hourly retired employees.
Help to retool unions from a thankful people and nation.
Over The Next score (20 Years) as union contracts expire and change, As Jobs in other Countries pay better wages with benefits. I know this will faze away,
I Sincerely hope new auto jobs here don't lose the hope of a good living wage.
Also this will begin to move new jobs here now and later.
Stock prices will fly so high you won’t believe it…
From an Ex Steel Worker, plant closed 1981.
Dozervice@msn.com

Brian Skidmore

December 6, 2008 3:36 PM

Whoa - politics? A little of yours is showing.

>>> The government already has stiffened fuel economy rules.>> does it really matter which account the cash comes from?

Unfortunately it does, this is a (R) tactic, take the money from X fund so it cannot be used for what it was intended...

David Welch

December 7, 2008 11:09 AM

David Welch with BusinessWeek here. Mr. Skidmore, Congress has already passed a new energy bill that mandates that CAFE standards must jump to 35 mpg by the middle of the next decade. They have to start meeting tougher fuel-economy regs in 2010.

That's why Pelosi's demand is irrelevant. The car companies have already changed their product plan to meet what will be law starting in 2010. So approving any money for them is giving them cash to develop new models that will have better fuel economy. She was pandering to the green groups. And after reading your post, it's clear that she was sucessful.

As for "my politics showing through," I believe I took on the Republicans for the same political gamesmanship.

gerard duchene

December 7, 2008 1:42 PM

I am so sick and tired of Americans bashing other American workers! Its seems like its become trendy to buy Japanese, Korean and God knows what other foreign cars that other countries send here. This is the only country in the world that does not value its manufacturing jobs. All the other countries bend over backwards to take care of their manufacturing jobs. Ask your self this,,, how many troops does Japan, Korea, or Germany have helping us out in Afganistan? How do they help the USA besides buying up all our debt then controlling us like so many puppets on a string. WAKE UP AMERICA!!

Paul (Vw)

December 7, 2008 5:44 PM

One thing though I think the White House had a point on, was that the TARP legislation was intended to prop up banks and Wall Street (granted, my understanding of the law comes from watching Matlock reruns).

If congress wanted to use TARP money for something else, then they should modify the TARP legislation...or (as Pelosi capitulated on) change the legislation for the already approved loans for retooling Detroit.

Given the vast sums of money being thrown around (for everyone including Wall Street, Detroit...just about everyone but me) I think it makes sense for congress to have to specifically legislate where these bags of money go. I don't like the idea that without a legislative vote, Pelose/Reid tell Bush to redirect funds to a completely different purpose. I want clear accountability and oversight by congress on where bailout dollars go.

That being said, I think the White House tried to throw in a monkey wrench by pushing the idea that the (additional) Detroit bailout money come from funds already approved for retooling.

texanrme

December 8, 2008 1:14 AM

I was against unions all my life. In 2002 I joined the IBEW and discovered that my denial of unions was very unwarranted. NFL means not for long in football if you are not very good, and it applies to union jobs as well. The people speaking against unions do not know what they are talking about. Unions and fear of unions is responsible for higher paid jobs. Do we really want to kill the unions and let everyone work for $ 8.00 per hour and no benefits, health care, 40 hour week with overtime, vacation etc?

Jeff B

December 8, 2008 8:32 AM

So where are the "bold" members of congress when it comes to requiring changes at the top of the UAW as well? Or could it be that Pelosi, Levin, etc. are so thoroughly padded with PAC & lobbyist money from the UAW that this will never happen? The minor concessions made so far by the UAW are not enough. Their current wage & benefit packages will ensure that no matter how good the cars are from Detroit (and they are not that good) they will not be competitive.

Carolyn M

December 11, 2008 9:06 AM

Remind me why we are considering bailing out Chrysler, a private corporation. I would hate to think that Cerberus and Daimler are entitled to be reimbursed for what amounts to a purchase of a troubled auto finance entity with a free car manufacturing company thrown in for good measure. Let them sell off Jeep and the minivans to reduce their losses, although I don't know who would buy them.

If Robert Nardelli, who decimated Home Depot and walked away with a gazillion millions as a golden parachute, would work for a $1 a year he still would be overpaid. Ask the Home Depot employees and the stockholders.

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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